2019 Third Quarter Financial Results (13 Nov 2019)

Financials Archive

Statements of Total Return



Statements of Financial Position



Review of Performance



Review of OUE C-REIT Group's performance 3Q 2019 vs 3Q 2018

3Q 2019 revenue of S$63.3 million and net property income of S$50.1 million were 53.7% and 54.8% respectively higher compared to that achieved in 3Q 2018. The Commercial segment recorded higher revenue and net property income mainly due to the inclusion of income from OUE Downtown Office which was acquired in November 2018 and Mandarin Gallery upon completion of the Merger in September 2019. Revenue and net property income from the Hospitality segment was contributed by Mandarin Orchard Singapore and Crowne Plaza Changi Airport upon completion of the Merger in September 2019.

Other income was S$2.8 million higher in 3Q 2019 compared to 3Q 2018 with the inclusion of income support in relation to OUE Downtown Office from the Sponsor Group.

The Merger and inclusion of OUE Downtown Office also resulted in higher manager's management fees, trustee fee and other expenses.

Net finance cost increased S$5.7 million year-on-year mainly attributable to higher interest cost of S$4.9 million, resulting from inclusion of OUE H-Trust's finance costs and higher level of borrowings (including loan drawdown for the Merger and acquisition of OUE Downtown Office).

After accounting for S$16.8 million fair value adjustment in relation to the Merger, total return recorded for 3Q 2019 was S$9.1 million, compared to total return of S$13.8 million in 3Q 2018.

Review of OUE C-REIT Group's performance YTD September 2019 vs YTD September 2018

YTD September 2019 net property income of S$134.4 million was S$32.8 million higher than YTD September 2018. The Commercial segment recorded higher revenue and net property income mainly due to the inclusion of income from OUE Downtown Office which was acquired in November 2018 and Mandarin Gallery upon completion of the Merger in September 2019. Revenue and net property income from the Hospitality segment was contributed by Mandarin Orchard Singapore and Crowne Plaza Changi Airport upon completion of the Merger in September 2019.

Other income was S$10.0 million higher in the current period with the inclusion of income support drawdown in relation to OUE Downtown Office from the Sponsor Group.

The Merger and inclusion of OUE Downtown Office also resulted in higher manager's management fees, trustee fee and other expenses.

Net finance cost increased S$12.4 million year-on-year mainly attributable to higher interest cost of S$12.1 million, resulting from inclusion of OUE H-Trust's finance costs and higher level of borrowings (including loan drawdown for the Merger and acquisition of OUE Downtown Office).

After accounting for S$16.8 million fair value adjustment relating to the Merger, total return for YTD September 2019 increased 19.8% to S$54.2 million, as compared to S$45.2 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

Singapore

Singapore's GDP growth in 3Q 2019 was 0.1%(1) based on advance estimates by the Ministry of Trade and Industry (“MTI”), the same pace of growth as the previous quarter. On a quarter-on-quarter (“QoQ”) seasonally adjusted annualised basis, the economy expanded by 0.6% compared to 2.7% contraction in the previous quarter. The manufacturing sector declined 3.5% year-on-year (“YoY”) in 3Q 2019, furthering the 3.3% contraction in 2Q 2019, due to output declines in the electronics, precision engineering and transport engineering clusters. The services sector expanded a lower 0.9% YoY in 3Q 2019 following 1.1% YoY growth in the previous quarter. While the delay in further implementation of US-China trade tariffs provides some reprieve, the protracted trade-driven weakness may impact domestic confidence and consumption against the backdrop of broader weakness globally, curtailing Singapore's growth prospects. The official 2019 GDP growth forecast is 0% to 1.0%.

According to CBRE, office demand in 3Q 2019 was weak as business sentiment amongst occupiers remained cautious amid the uncertain global economic outlook, resulting in relatively low net absorption of 74,590 sq ft. Leasing was driven mainly by flexible-space operators and technology firms, with growth in the co-working sector appearing to ease. With no completions during the quarter, core CBD Grade A office occupancy edged up 0.4 ppt QoQ to 96.5% while rents rose 1.3% QoQ to S$11.45 psf/mth as at 3Q 2019, at the same pace as the previous quarter. On the supply front, the medium term outlook continues to be benign.

For the first nine months of 2019, international visitor arrivals to Singapore registered a 2.1% growth compared to a year ago to 14.3 million. For the month of September 2019, international visitor arrivals increased 1.0% compared to a year ago, while the number of visitor days increased by 3.2% for the same period to 3.3 days(3). Singapore is continually refreshing its tourist offerings with the expansions of the two existing integrated resorts and other tourism developments, greater flight connectivity to key source markets and expansion of its aviation infrastructure. Further, the Singapore Tourism Board continues to drive visitor arrivals, positioning Singapore as a prime convention destination. These positive demand drivers, coupled with limited future hotel supply are expected to support the Singapore hospitality sector.

China

China's GDP growth in 2Q 2019 was 6.0%(4), moderating from 6.2% in the previous quarter and at the lower end of the government's 2019 growth target of 6.0% to 6.5%.

The economy expanded at the slowest pace in almost three decades, impacted by weaker exports amid the trade tensions with the US and lower consumption. Despite some stabilisation in retail sales and industrial production in September which grew 7.8% YoY and 5.8% YoY respectively, slowing investment growth remains a concern as overall demand continues to soften on waning business and consumer confidence. With fiscal constraints putting a dampener on infrastructure spending, more support in the form of monetary policy easing by the authorities is expected to stabilise the economy.

According to Colliers International, 3Q 2019 net absorption in the Shanghai CBD weakened considerably to 24,000 sq m(5), down 60.7% QoQ, contributed by uncertainty due to international trade tensions. Shanghai CBD Grade A occupancy fell 0.9 ppt QoQ to 87.5% as at 3Q 2019 and rents edged down 0.7% QoQ to RMB10.20 psm per day. In Puxi, Grade A office occupancy weakened 1.7 ppt QoQ to 90.2% as at 3Q 2019, although rents edged up 0.2% QoQ to RMB9.56 psm per day. With office projects which were previously deferred entering the market in 2020, and intensified competition from the decentralised markets, rental growth is expected to be subdued in the near-term. As supply eases from 2021, stable demand is expected to underpin steady rental growth.

Overall, the operational performance of OUE C-REIT's property portfolio is expected to be positive for the balance of 2019, and into 2020.

(1) Singapore Ministry of Trade and Industry Press Release, 14 October 2019
(2) CBRE, Singapore MarketView 3Q 2019
(3) Singapore Tourism Board, International Visitor Arrivals Statistics, 1 November 2019
(4) National Bureau of Statistics of China Press Release, 18 October 2019
(5) Colliers International, Shanghai Office Property Market Overview 3Q 2019