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Thursday, August 06, 2020

OUE Commercial Trust Analysis @ 6 August 2020

Basic Profile & Key Statistics
OUE Commercial Trust (OUECT) invests in Office, Hospitality and Retail properties. Most of its properties located in Singapore. OUECT recently merged with OUE Hospitality Trust (OUEHT) in September 2019 to form a larger and more diversified SREITs. 

Lease Profile
Occupancy (exclude hospitality properties) is slightly low at 91.6%. WALE (include hospitality sector) is short at 3.5 years. From the latest presentation, 33.8% of lease will be expiring in 2024 and beyond without breakdown. Before 2024, then the highest lease expiry of 23% falls in the year 2021. Around 10% of its income received in RMB while the rest received in SGD. Weighted average land lease expiry is short at 40.54 years.

Debt Profile
Gearing ratio is high at 40.1%. Cost of debt is slightly high at 3.1%. Fixed rate debt is at moderate level of 80.7% where unsecured debt low at 41.6%. Interest cover ratio is low at 2.8 times. WADE is short at 1.8 years where the highest debt maturity of 29.5% expiring in year 2021.

Diversification Profile
Top geographical contribution is high at 89.7%. Top property contribution is slightly high at 25.2%. Both top tenant and top 10 tenants contributions are low at 4.9% and 27%.

Key Financial Metrics 
Property yield is low at 3.4%. Management fee is less competitive in which unitholders received S$ 6.54 for every dollar paid. Distribution on capital and distribution margin are low at 2.1% and 37.2% respectively. 13.5% of past 4 quarters distribution is from income support. I have previously posted about OUECT income support in Case Studies for SREITs with Income Support.

Related Parties Shareholding 
Sponsor and manager are holding significant stakes in OUECT. Directors of REIT manager shareholding is less significant.

Trend 
DPU and NAV per Unit are on downtrend, but NAV per unit is stable after merger with OUEHT. Distribution margin is also improved after merger with OUEHT.

Relative Valuation
i) Average Dividend Yield
Apply past 4 quarters DPU of 2.63 cents to average yield of 7.13% will get S$ 0.37.  If we take the DPU without retention, then DPU would be 2.83 cents, which translates into S$ 0.395. 
ii) Average Price/NAV 
Average value is at 0.7, apply latest NAV of S$0.61 will get S$ 0.425.

Author's Opinion
Favorable  Less Favorable
Diversified Sector WALE
Top Tenant & Top 10 Tenants Contribution Weighted Average Land Lease Expiry
Gearing Ratio
Unsecured Debt
Interest Cover Ratio
WADE
Top Geographical Contribution
Property Yield
Distribution on Capital
Distribution Margin
Income Support
DPU Downtrend
NAV per Unit Downtrend
To avoid controversy, I would not indicate my fundamental intrinsic value from now on. And I will be removing all fundamental intrinsic value and do some modification on all my previous posts. Thanks for understanding.

*Disclaimer: Materials in this blog are based on my research and opinion which I don't guarantee the accuracy, completeness, and reliability. It should not be taken as financial advice or statement of fact. I shall not be held liable for errors, omissions as well as loss or damage as a result of the use of the material in this blog. Under no circumstances does the information presented on this blog represent a buy, sell, or hold recommendation on any security, please always do your own due diligence before any decision is made.

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