OUE C-REIT Achieves 23% Jump in Net Property Income as Hospitality Bounces Back

OUE Commercial REIT booked a 23 percent jump in net property income as it brought in S$115.3 million ($87.11 million) in the first half of the year on the ongoing strength of Singapore’s core office market and a rebound in its hotel business.

“We are pleased to report that OUE C-REIT’s hospitality segment is performing above pre-COVID levels, supported by the ongoing recovery of Singapore’s tourism sector,” Han Khim Siew, chief executive officer of the REIT’s manager said in a statement, as the trust booked a 36 percent increase in hotel revenues.

The hospitality boom helped OUE C-REIT to increase its revenue for the period to S$138.8 million, which was up 20 percent from the first half of 2022 when it took in S$115.8 million, its manager said in a regulatory filing Wednesday.

Despite the hospitality boost, funds distributable to unitholders fell 3.3 percent to S$57.6 million for the first half, from S$59.5 million a year ago, due to a 74 percent spike in finance costs.

Revenge Travel Kicks Off

OUE C-REIT, which owns a portfolio of seven office, hotel and retail properties in Singapore and Shanghai valued at S$930 million, recorded hotel revenues of S$45.8 million in the first half bolstered by a 34 percent increase in revenue per available room (RevPAR).

After reopening the 446-room Orchard Wing of Hilton Singapore Orchard at the start of the year, RevPAR at its flagship Hilton Singapore Orchard hotel went up 17 percent S$246 compared to the same period last year when only the 634-room Mandarin Wing was open.

Revenues at the Crowne Plaza Changi Airport also rose 54 percent from a year ago to reach S$207 per key.

The SGX-listed REIT sourced nearly a third of its first-half revenues from the two hotels during the first half, with the properties benefiting from visitor arrivals in the Lion City, which recovered to an average of one million per month during the period.

Average room rates at hotels in Singapore during the first five months of 2023 rose to an average of S$271.17 per night to surpass pre-pandemic levels, even as occupancy remained below 80 percent, according to a recent report by Colliers.

“While global economic conditions are highly uncertain and the hospitality sector’s recovery is also dependent on labour and cost challenges, OUE C-REIT’s hotel properties are well-positioned to capture the rebound in business and leisure travellers,” the trust’s manager said.

Resilient Office Sector

Revenues from OUE C-REIT’s commercial assets during the first six months of this year also rose by 13 percent compared to the same period in 2022 to reach S$93 million, as the trust enjoyed 96 percent committed occupancy in its Singapore office portfolio and achieved positive rental reversions of 8 percent. The trust’s office assets supplied half of its total revenues in the first six months of 2023.

The trust’s commercial assets include full ownership of the office component of OUE Downtown in Shenton Way, as well as partial stakes in the OUE Bayfront and One Raffles Place integrated developments in Raffles Place.

“Benefitting from their prime locations and well-diversified tenant mix, OUE C-REIT’s core Grade A office assets are well-positioned to weather market uncertainties in 2023,” the manager said.

Higher shopper traffic and tenant sales also helped boost committed occupancy rates in Mandarin Gallery, the REIT’s high-end shopping centre inside the Hilton Singapore Orchard, to 98 percent.

Occupancy in its Lippo Plaza commercial complex in Shanghai rose to 86.6 percent as mainland office markets continue to face challenging economic conditions and a glut of new stock.

Gearing Still Stable

Higher financing costs weighed down the REIT’s distributions to unitholders for the period as distributions per unit slid to S$0.0105 in the first half from S$0.0108 a year ago.

Han said the trust’s manager has already secured S$430 million in sustainability-linked loans to refinance existing borrowings and reduce near-term refinancing risks. Following the refinancing, the REIT has an weighted average term of debt of three years as of end-June, with no refinancing obligations to meet until 2025.

OUE C-REIT’s aggregate leverage reached 39.1 percent at the end of June with total existing debt of S$2.34 million, which was slightly higher than its 39 percent gearing in March.

To manage the risks from rising interest rates, the manager said it aims to further extend the REIT’s debt maturity profile, optimise cost of debt through hedging strategies and strengthen its credit profile to bring down funding costs.

The manager said OUE C-REIT will also “actively pursue growth opportunities” in its home city while also aiming to expand into other markets such as Japan, Australia and the UK over the long term.