2019 Second Quarter Financial Results (07 Aug 2019)

Financials Archive

Statements of Total Return



Statements of Financial Position



Review of Performance



Review of OUE C-REIT Group's performance 2Q 2019 vs 2Q 2018

2Q 2019 net property income of S$40.8 million was 20.1% higher compared to S$33.9 million achieved in 2Q 2018. This was due mainly to the inclusion of OUE Downtown Office's income which was acquired in November 2018.

Other income for 2Q 2019 increased to S$4.2 million with the inclusion of income support in relation to OUE Downtown Office from the Sponsor Group.

The inclusion of OUE Downtown Office also resulted in higher current period base management fees, trustee fee and amortisation of intangible asset.

The increase in finance cost year-on-year is mainly attributable to higher interest cost of S$3.5 million, resulting from higher level of borrowings for the acquisition of OUE Downtown Office.

Consequently, total return for 2Q 2019 increased 34.2% to S$20.5 million, compared to S$15.3 million in 2Q 2018.

Review of OUE C-REIT Group's performance 1H 2019 vs 1H 2018

1H 2019 net property income of S$84.3 million was higher than 1H 2018 by S$15.1 million. This was due mainly to the inclusion of OUE Downtown Office's income which was acquired in November 2018 and one-off income from OUE Bayfront and One Raffles Place in 1Q 2019.

Other income for 1H 2019 increased by S$7.2 million with the inclusion of income support in relation to OUE Downtown Office from the Sponsor Group.

The inclusion of OUE Downtown Office also resulted in higher current period base management fees, trustee fee and amortisation of intangible asset.

Finance cost increased S$7.2 million year-on-year mainly attributable to higher interest cost of S$7.2 million, resulting from higher level of borrowings for the acquisition of OUE Downtown Office.

Consequently, total return for 1H 2019 increased 43.6% to S$45.1 million, compared to S$31.4 million in 1H 2018.

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 slowed sharply in 2Q 2019 to 0.1%(1) based on advance estimates by the Ministry of Trade and Industry ("MTI"), from 1.1% in the previous quarter. On a quarter-on-quarter ("QoQ") seasonally adjusted annualised basis, the economy contracted 3.4%, compared to 3.8% growth in the previous quarter. The manufacturing sector declined 3.8% year-on-year ("YoY") in 2Q 2019, furthering the 0.4% contraction in 1Q 2019, due to output declines in the electronics and precision engineering clusters. The services sector expanded by 1.2% YoY in 2Q 2019, unchanged from the previous quarter. The ongoing US-China trade tensions and deterioration in the external macroeconomic environment is expected to curtail Singapore's growth prospects for the balance of 2019. The official 2019 GDP growth forecast was narrowed to 1.5% and 2.5%, from the range of 1.5% to 3.5% previously.

According to CBRE, while office vacancy continued to tighten on the back of positive islandwide net absorption of 508,443 sq ft due mainly to the completion of an office building in the CBD fringe, leasing momentum has slowed on the back of business uncertainty and consolidation due to the cloudy global economic outlook. Consequently, even as the core CBD Grade A occupancy rose 0.9 percentage points ("ppt") QoQ to 96.1%(2) in 2Q 2019, growth in core CBD Grade A office rents moderated to 1.3% QoQ, to S$11.30 psf per month. Given the benign medium term office supply outlook, however, we continue to expect positive operational performance in 2019.

China

China's 2Q 2019 GDP growth was 6.2%(3), down from 6.4% in 1Q 2019 and at the weakest pace in 27 years. The trade tensions with the US weighed on the economy, as higher tariffs led to a contraction in exports, while imports into China also slowed as domestic demand retreated. While the industrial output and retail sales for June 2019 showed improvement on the back of earlier fiscal policy measures, more support in the form of monetary policy easing by the authorities is expected in the second half of the year to stabilise the economy.

According to Colliers International, Shanghai CBD Grade A office net absorption turned positive in 2Q 2019 at 61,000 sq m, albeit below-trend. Due to slow leasing progress, some planned completions of new office projects were delayed. With no new completions during the quarter, Shanghai CBD Grade A office occupancy increased 0.8 ppt QoQ to 88.4%(4). With increased competition for tenants, Shanghai CBD Grade A office rents edged down 0.5% QoQ to RMB10.27 psm per day as at 2Q 2019. In Puxi, Grade A office occupancy was 91.9% as at 2Q 2019, 2.2 ppt higher QoQ, with rents 0.1% lower QoQ at RMB 9.54 psm per day.

With a significant amount of new office supply scheduled to enter the Shanghai market in 2019 and the decentralisation of demand expected to continue, rental growth is expected to be subdued in the near-term. As supply eases in the longer term from 2020, stable demand is expected to underpin steady rental growth.

Proposed merger with OUE Hospitality Trust

On 8 April 2019, the Manager announced the proposed merger of OUE C-REIT with OUE Hospitality Trust by way of a trust scheme of arrangement. The circular on the proposed merger was despatched to Unitholders on 10 July 2019 with an extraordinary general meeting ("EGM") to be convened on 14 August 2019.

(1) Singapore Ministry of Trade and Industry Press Release, 12 July 2019
(2) CBRE, Singapore MarketView 2Q 2019
(3) National Bureau of Statistics of China Press Release, 15 July 2019
(4) Colliers International, Shanghai Office Property Market Overview 2Q 2019