OUE Commercial REIT (SGX:TS0U)'s Net Property Income Was Up 23% But DPU Was Impacted


Source: OUE Commercial REIT's Presentation Slide


OUE Commercial REIT (SGX: TS0U) has recently announced its second quarter financial results. It is currently trading at 5.4% yield based on the last traded share price of $0.37.


Key Highlights:


  • Distribution per unit (DPU) and Dividend Yield (5.4%)

  • Price to book ratio (0.6)

  • Gearing (40.1%)

  • Interest coverage ratio (2.8x)

  • Portfolio occupancy rate (91.6%)

  • Growth catalyst


Background of OUE Commercial REIT


OUE Commercial REIT was a commercial REIT when it was first listed in January 2014. In September 2019, it was merged with OUE Hospitality Trust to become one of the largest diversified REITs, with both commercial and hospitality assets.


As of July 2020, the REIT is managing seven prime properties across the commercial and hospitality segments in both Singapore and China.


1. Distribution per unit and dividend yield


Based on its 2Q financial results, OUE Commercial REIT's net property income increased by 23.7% to $50.4m. This was mainly due to the contributions from Mandarin Orchard Singapore and Crowne Plaza Changi Airport post-merger with OUE Hospitality Trust. However, its 1H DPU was down 40.5% to 1 cent, on an expanded unit base of 88.5% and rental rebate to its tenants during the pandemic.


Based on its latest price, the REIT is currently trading at about 5.4% dividend yield. Historically, the REIT has not been very consistent and its current of 5.4% yield is below its average yield of 7% over the past 6 years.




2. Price to book ratio


OUE Commercial REIT is currently trading at 0.6 price to book ratio, indicating a discount of 40% based on its net asset values. Its current price to book ratio is also 10% below its historical average of 0.66.



3. Gearing


Portfolio leverage remains at 40.1%, with a short average debt tenor of 1.8 years. 54% of its debt is up for refinance in the next two years.


OUE Commercial REIT's Debt Profile

4. Interest coverage ratio


The REIT's interest coverage ratio drops to 2.8 times, which is well below our preference of 4 times. The weighted interest cost is at 3.1%, with more than 80.7% of its debt is hedged with fixed rate.


5. Portfolio occupancy rate


Portfolio occupancy rate declined to 91.6%. Overall, its occupancy rate for the office segment is below the market average of 97.1%.

Source: OUE Commercial REIT's Presentation Slide


6. Growth Catalyst


The REIT management has guided that the shopper traffic has recovered to about 70% of its pre-Covid-19 levels at Mandarin Gallery. However, the overall business environment is expected to remain challenging. The occupancy rate and office rentals are likely to remain under pressure in the near term.


The management continues to seek for alternative demands for its hospitality segment, which include eldercare workers and staycation from locals.


Summary


The office and hospitality segments continue to remain challenging in the coming months. We would expect the DPU to be impacted in the next two quarters.



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