OUE C-Reit posts 4.4% rise in net property income in Q3

THE manager of OUE Commercial Real Estate Investment Trust (OUE C-Reit) on Thursday (Nov 3) reported a 4.4 per cent year-on-year rise in net property income in the third quarter ended Sep 30, although its amount available for distribution continued to shrink.

Net property income in Q3 rose to S$48.3 million, due mainly to lower property expenses, the manager said in an exchange filing.

The Reit’s revenue increased 1.7 per cent to S$59.5 million in the quarter, compared with the same period last year.

But lower income support for OUE Downtown Office and the higher interest expense in the same quarter led to a drop in the amount available for distribution, which was 13.3 per cent lower year on year at S$26.2 million.

The Reit’s commercial segment in Q3 reported 2.4 per cent year-on-year growth in revenue to S$42.6 million, as well as a 5.3 per cent year-on-year increase in net property income to S$32.7 million.

As at Sep 30, the committed occupancy of OUE C-Reit’s Singapore office properties increased 2.5 percentage points on a quarterly basis to 95.4 per cent, the manager noted.

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Leasing demand was however tepid in Shanghai, owing to ongoing business uncertainty and as occupiers focused on space and cost efficiencies, it said.

Q3 revenue for the hospitality segment remained at the minimum rent of S$16.9 million under the master lease arrangements of OUE C-Reit’s hotel properties due to the reduced inventory, said the manager. Net property income rose 2.7 per cent year on year in the same quarter to S$15.6 million.

Han Khim Siew, chief executive of the manager, said it has taken a “proactive capital management approach” to stay resilient against inflation, rising interest rates and other headwinds like heightened geopolitical tensions.

“We have mitigated refinancing risk by successfully completing the early refinancing of close to S$1 billion of secured debt in August with an unsecured S$978 million sustainability-linked loan,” said Han.

This means only 12 per cent of total debt is due for refinancing in 2023 and none in 2024.

He added that the manager further diversified funding sources in May and increased financial flexibility with the issuance of S$150 million five-year 4.2 per cent fixed-rate notes.

As at end-September, the Reit’s aggregate leverage was 40.3 per cent with the weighted average cost of debt remaining stable at 3.2 per cent per annum, said the manager. It added that about 70 per cent of total debt is hedged into fixed interest rates to mitigate the impact of rising rates.

On the whole, demand for office space was largely driven by technology firms, flexible workspace operators and non-banking financial companies, said the manager.

Grade A occupancy in the central business district (CBD) grew 1.3 percentage points sequentially to 96.9 per cent, while office rents rose 2.7 per cent quarter on quarter to S$11.60 per square foot per month.

“While global macroeconomic headwinds and consolidation in the technology sector could weigh on demand and rents in 2023, core CBD Grade A office rental growth is expected to remain positive for the rest of 2022 and 2023 due to the limited supply pipeline, barring a sustained recession,” said the manager.

As for the hospitality sector, the manager said the further easing of pandemic measures, pick-up in MICE events and continued recovery of the travel-related sectors are expected to sustain hotel demand despite inflationary pressures and the uncertain economic outlook.

“The manager will adapt its leasing strategies according to the business environment and continue to recalibrate its asset management strategy to optimise the performance of OUE C-Reit’s portfolio, while remaining focused on prudent capital management,” said the manager.

“To partially offset rising costs, the Manager will be raising service charges for the Singapore commercial portfolio from January 2023.”