2018 Third Quarter Financial Results (08 Nov 2018)
Statements of Total Return
Statements of Financial Position
Review of Performance
Review of OUE C-REIT Group’s performance 3Q 2018 vs 3Q 2017
3Q 2018 net property income of S$32.3 million was 5.1% lower compared to S$34.1 million achieved in 3Q 2017. This was due mainly to lower revenue achieved, partially mitigated by lower utilities cost and maintenance expenses in the current reporting period.
Other income was S$0.3 million higher in 3Q 2018 compared to 3Q 2017, due to higher income support drawdown in relation to OUE Bayfront from the Sponsor.
Net finance cost increased S$0.8 million year-on-year mainly attributable to higher interest cost of S$1.4 million, resulting from higher level of borrowings.
Consequently, total return for 3Q 2018 decreased 15.7% to S$13.8 million, compared to S$16.4 million in 3Q 2017.
Review of OUE C-REIT Group’s performance YTD September 2018 vs YTD September 2017
YTD September 2018 net property income of S$101.6 million was S$1.9 million lower than YTD September 2017 resulting from lower results achieved by the Singapore properties. This was partially mitigated by better results achieved by Lippo Plaza, lower utilities cost and maintenance expense.
Other income was S$0.9 million higher in the current period, due to higher income support drawdown in relation to OUE Bayfront from the Sponsor.
Net finance cost decreased S$0.2 million year-on-year mainly attributable to net IRS’s fair value gain of S$1.9 million in the current period, as compared to S$0.2 million fair value loss in the prior period and lower debt establishment cost. Both have no DPU impact. This is partially offset by higher interest cost of S$3.7 million, which was a result of higher level of borrowings.
Consequently, total return for YTD September 2018 decreased 2.2% to S$45.2 million, as compared to S$46.3 million in the prior period.
Commentary on the competitive conditions of the industry in which the Group operates and any known factors or events that may affect the Group in the next reporting period and the next 12 months
The Singapore economy grew 2.6%(1) YoY in 3Q 2018, easing from 2Q 2018 growth of 4.1% based on advance estimates by the Ministry of Trade and Industry (“MTI”). On a quarter-on-quarter (“QoQ”) seasonally-adjusted basis, the economy grew by a faster pace of 4.7%, compared to the 1.2% QoQ increase in 2Q 2018. The manufacturing sector expanded by 4.5% YoY in 3Q 2018, from 10.6% in the previous quarter, supported by the electronics, biomedical manufacturing and transport engineering clusters. Growth in the services sector maintained at 2.9% YoY for 3Q 2018, driven by expansion in the finance & insurance, business services and wholesale & retail trade sectors. The pace of expansion is expected to moderate for the rest of the year in light of trade tensions between the US and China, as well as tighter global financial conditions. The MTI maintained its 2018 GDP growth forecast of between 2.5% and 3.5%.
According to CBRE, islandwide net absorption for office space in 3Q 2018 strengthened 20% QoQ to 605,077 sq ft on the back of overall stronger leasing activity and the healthy level of pre-commitment at a newly completed decentralised office property. With diversified demand from sectors such as technology, shipping, insurance as well as European and Asia financial institutions, core CBD office occupancy improved 0.5 percentage points (“ppt”) to 94.6%(2) as at 3Q 2018. As vacancy continued to tighten, Grade A CBD core office rents grew 3.5% QoQ to S$10.45 psf per month.
Given the pace of recovery in office market rents in the Singapore CBD, OUE Bayfront continued to achieve positive rental reversions for the lease renewals and rent reviews committed in 3Q 2018. With One Raffles Place achieving flat rent reversions in 3Q 2018 due to the narrowing gap between expiring rents and market rents, the extent of negative reversions in 2018 is expected to be less than that in 2017.
China’s economic growth in 3Q 2018 was 6.5%(3), slowing from 6.7% in 2Q 2018 and at the weakest pace since 1Q 2009. The official GDP growth target is around 6.5%. Industrial output growth weakened to 5.8% for September, with consumer spending and infrastructure investment also easing, given higher corporate borrowing costs as a result of continued curbs on excessive debt growth. Given the slowdown in the economy, a weaker stock market and the currency under pressure, policymakers are expected to prioritise reducing the risks to growth by easing fiscal and monetary policy.
According to Colliers International, Shanghai CBD Grade A office occupancy edged up 0.3 ppt QoQ to 89.7%(4) as at 3Q 2018, supported by stable net demand of 123,000 sqm for the quarter. With 119,000 sq m of new office supply in 3Q 2018, mainly located in Pudong, Shanghai CBD Grade A office rents softened 0.1% QoQ to RMB10.35 psm per day as at 3Q 2018. In Puxi, Grade A office occupancy rose 0.8 ppt QoQ to 91.5% as at 3Q 2018, while rents increased 0.6% QoQ to RMB 9.51 psm per day.
A significant amount of new office supply is expected to enter the Shanghai market over the next few years. Nevertheless, healthy demand from the finance and technology sectors is expected to underpin occupancy as well as rental rates in Shanghai.
(1) Singapore Ministry of Trade and Industry Press Release, 12 October 2018
(2) CBRE, Singapore MarketView 3Q 2018
(3) National Bureau of Statistics of China Press Release, 19 October 2018
(4) Colliers International, Shanghai Office Quarterly 3Q 2018, 20 October 2018