Exclusive Interview with OUE REIT: Shifting Profit Focus from Grade A Offices to more Hotels

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In this episode, we sat down with Han Khim Siew, CEO of OUE REIT, to explore the dynamic world of real estate investment and management. Celebrating its 10th anniversary, OUE REIT has grown into one of Singapore’s most significant diversified real estate investment trusts, managing a diverse portfolio of upscale hotels and commercial office spaces.

Han shares his insights on several key topics, including the bifurcation in the office market and how prime, green-rated buildings are thriving due to their appeal to the younger workforce. We also discuss the impact of COVID-19 on work patterns, the resilience of the hospitality sector, and the importance of maintaining high-quality office environments in prime locations.

Additionally, Han explains OUE REIT’s commitment to sustainability and ESG initiatives, which are crucial for attracting multinational tenants and securing favourable financing. We also delve into OUE REIT’s future expansion plans in key gateway cities like Tokyo, Sydney, Melbourne, and Hong Kong.

Key Pointers:

 

  • 00:00 Introduction and Portfolio Overview
    • Han Khim Siew introduces himself and OUE REIT
    • Discusses the portfolio composition and diversification
    • Emphasizes the focus on Singapore properties
  • 02:31 Office Space Strategy
    • Talks about the bifurcation in office space demand
    • Highlights the importance of prime locations and green-rated buildings
    • Explains the impact of work-from-home trends
  • 06:00 Tenant Dynamics and Market Trends
    • Discusses tenant preferences and the importance of CBD locations
    • Explains the challenges of right-sizing office spaces
    • Mentions the stability of co-working spaces
  • 10:00 Impact of Tech Tenants
    • Shares insights on the tech tenant composition in their portfolio
    • Discusses the changes in tech space demand
    • Highlights the benefits of a diversified tenant base
  • 16:00 Future Outlook and ESG Commitments
    • Talks about the future of office rents and lease expiries
    • Emphasizes the importance of ESG commitments
    • Explains the benefits of green financing and sustainability-linked loans
 
  • 24:48 Importance of ESG and Green Ratings
    • ESG targets linked to credit ratings
    • Green-rated buildings in prime locations
    • Impact on borrowing costs and dividends
  • 27:02 Shanghai Asset and Market Conditions
    • Prime location of Shanghai asset
    • Over-supply issues in Shanghai
    • Long-term belief in asset’s value
  • 31:04 Acquisition Strategy and Market Focus
    • Focus on key gateway cities
    • Interest in Tokyo, Sydney, Melbourne, Hong Kong
    • Avoiding further investments in China due to over-supply
  • 33:00 Shift to Hospitality Sector
    • Increasing revenue from hospitality
    • Benefits of dynamic pricing in hotels
    • Experience managing large hotels
  • 39:02 Operational Improvements and Branding
    • Asset enhancement initiatives
    • Rebranding to Hilton Singapore Orchard
    • Targeting corporate travelers and increasing room rates
 

 

  • 51:20 Hotel demand and room mix
    • Strong demand for certain room categories
    • Consultants and air crew as key guests
    • Focus on cities with both tourists and business travelers
  • 52:57 Sustainable dividend yield
    • Reducing seasonality in hotel bookings
    • Creating stable revenue streams
    • Example of Hilton Singapore’s success
  • 54:02 Concerts and events impact
    • Significant bookings during major events
    • Taylor Swift’s concert as a notable example
    • Similar impact to F1 events
  • 56:00 Financing strategy
    • Avoiding equity fundraisers due to dilution
    • Maintaining borrowing ratio below 40%
    • Recycling assets to acquire better-performing ones
  • 57:55 Future growth plans
    • Positive rental reversion in office spaces
    • Growth in hotel and retail revenue
    • Exploring opportunities in major cities like Sydney and Tokyo


Curious to learn more? Tune in to this episode and discover the strategies that make OUE REIT a leader in real estate investment.

Kenny Loh is a Wealth Advisory Director and REITs Specialist of Singapore’s top Independent Financial Advisor. He helps clients construct diversified portfolios consisting of different asset classes from REITs, Equities, Bonds, ETFs, Unit Trusts, Private Equity, Alternative Investments, Digital Assets and Fixed Maturity Funds to achieve an optimal risk-adjusted return. Kenny is also a CERTIFIED FINANCIAL PLANNER, SGX Academy REIT Trainer, Certified IBF Trainer of Associate REIT Investment Advisor (ARIA) and also an invited speaker of REITs Symposium and Invest Fair.  You can join my Telegram channel #REITirement – SREIT Singapore REIT Market Update and Retirement-related news. https://t.me/REITirement

Continue ReadingExclusive Interview with OUE REIT: Shifting Profit Focus from Grade A Offices to more Hotels

Singapore REITs Monthly Update (September 8th, 2024)

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Technical Analysis of FTSE ST REIT Index (FSTAS351020)

FTSE ST Real Estate Investment Trusts (FTSE ST REIT Index) increased from 654.43 to 702.98 (7.15%) compared to last month’s update. This is the highest percentage gain in the index in a while. The REIT Index has started an uptrend and enter bullish territory.

  • Short-term direction: Up
  • Medium-term direction: Up
  • Long-term direction: Sideways
  • Immediate Support: 20D, 50D SMA and 200D SMA (665-675 zone)
  • Immediate Resistance 732-740 Zone.

FTSE REIT Index Chart (2 years)

Previous chart on FTSE ST REIT index can be found in the last post: Singapore REIT Fundamental Comparison Table on August 12th, 2024.

Fundamental Analysis of 38 Singapore REITs

The following is the compilation of 38 Singapore REITs with colour-coding of the Distribution Yield, Gearing Ratio and Price to NAV Ratio.

  • The Financial Ratios are based on past data and these are lagging indicators.
  • All REITs have the latest Q2 2024 values.
  • I have introduced weighted average (weighted by market cap) to the financial ratios, in addition to the existing simple average ratios. This is another perspective where smaller market cap REITs do not disproportionately affect the average ratios.

Data from REITsavvy Screener. https://screener.reitsavvy.com/

What does each Column mean?

  • FY DPU: If Green, FY DPU for the recent 4 Quarters is higher than that of the preceding 4 Quarters. If Lower, it is Red.
  • Yield (ttm): Yield, calculated by DPU (trailing twelve months) and Current Price as of September 6th, 2024.
  • Gearing (%): Leverage Ratio.
  • Price/NAV: Price to Book Value. Formula: Current Price over Net Asset Value per Unit.
  • Yield Spread (%): REIT yield (ttm) reference to Gov Bond Yields. REITs are referenced to SG Gov Bond Yield.

As of May 2024, all REITs’ Yield Spread will be referenced to SG Gov Bond Yields, regardless of trading currency.

Price/NAV Ratios Overview

  • Price/NAV increased to 0.89 (Weighted Average: 0.89)
    • Increased from 0.85 in August 2024.
    • Singapore Overall REIT sector is slightly undervalued
  • Most overvalued REITs (based on Price/NAV)
    Keppel DC REIT 1.60
    ParkwayLife REIT 1.52
    Capitaland Ascendas REIT 1.33
    Mapletree Industrial Tr 1.21
    Frasers Centrepoint Trust 1.05
    Mapletree Logistics Tr 1.02
    • EC World REIT is currently suspended, however at current Price and NAV/Unit values it has a value of 4.67 (N.M)
  • Most undervalued REITs (based on Price/NAV)
    Manulife US REIT 0.29
    Prime US REIT 0.33
    ARA Hospitality Trust 0.34
    Keppel Pacific Oak US REIT 0.35
    Lippo Malls Indonesia Retail Trust 0.36
    OUE REIT 0.43

Distribution Yields Overview

  • TTM Distribution Yield decreased to 6.37%. (Weighted Average decreased to 5.91%)    
    • Decreased from 7.14% in August 2024. (Weighted Average was 6.36%)
    • 15 of 40 Singapore REITs have ttm distribution yields of above 7%.
  • Highest Distribution Yield REITs (ttm)
    IREIT Global 11.79
    ARA Hospitality Trust 11.39
    Elite Commercial REIT 9.93
    Cromwell European REIT 9.77
    United Hampshire REIT 9.33
    EC World REIT 9.24

    Reminder that these yield numbers are based on current prices. 

    • Some REITs opted for semi-annual reporting and thus no quarterly DPU was announced.
    • A High Yield should not be the sole ratio to look for when choosing a REIT to invest in.
  • Yield Spread tightened to 3.76%. (Weighted Average remained similar at 3.99%)     
    • Tightened from 4.25% in August 2024. (Weighted Average was 4.01%)
    • From May 2024 onwards, all my yield spread measurements are now in relation to SG Gov Bond Yields, no longer a mix with US Gov Bond Yields.

 

Gearing Ratios Overview

  • Gearing Ratio remained similar at 39.12%. (Weighted Average: 38.28%)
    • Remained similar from 39.14% in August 2024. (Weighted Average: 38.28%)  
    • Gearing Ratios are updated quarterly. Therefore there were only 2 gearing ratio updates this month.
    • S-REITs Gearing Ratio has been on a steady uptrend. It was 35.55% in Q4 2019.
  • Highest Gearing Ratio REITs
    EC World REIT 57.9
    Manulife US REIT 56.3
    Prime US REIT 48.1
    Lippo Malls Indonesia Retail Trust 45.0
    ARA Hospitality Trust 43.5
    Keppel Pacific Oak US REIT 42.7

    MUST and EC World REIT’s gearing ratio has exceeded MAS’s gearing limit of 50%. However the aggregate leverage limit is not considered to be breached if exceeding the limit is due to circumstances beyond the control of the REIT Manager.

Market Capitalisation Overview

  • Total Singapore REIT Market Capitalisation increased by 7.12% to S$92.57 Billion.
    • Increased from S$86.20 Billion in August 2024.
  • Biggest Market Capitalisation REITs (S$m):
    Capitaland Integrated Commercial Trust 14410.76
    Capitaland Ascendas REIT 12795.27
    Mapletree Pan Asia Commercial Trust 7412.37
    Mapletree Logistics Tr 7022.26
    Mapletree Industrial Tr 5981.85
    Frasers Logistics & Commercial Trust 4226.20
  • Smallest Market Capitalisation REITs (S$m):
    ARA Hospitality Trust 136.30
    Lippo Malls Indonesia Retail Trust 153.94
    Elite Commercial REIT 161.43
    Manulife US REIT 183.50
    BHG Retail REIT 226.03
    EC World REIT 226.76

Disclaimer: The above table is best used for “screening and shortlisting only”. It is NOT for investing (Buy / Sell) decision. If you want to know more about investing in REITs, scroll down for more information on the REITs courses.

Top 20 Best/Worst Performers of August 2024

Source: https://screener.reitsavvy.com/

SG 10 Year Government Bond Yield

  • SG 10 Year: 2.59% (decreased from 2.88%)

 

Summary

Singapore REITs have experienced a strong rally over the past month in anticipation of an interest rate cut in September. The FTSE ST REIT index has recently begun an uptrend, signaling the start of a bull market for Singapore REITs.

The expected cut in the U.S. interest rate and the decline in the U.S. 10-year bond yield are key catalysts that could further boost the Singapore REIT sector. According to the current Fed Fund Rate projections from the CME Group, a minimum 25 basis point cut is expected by Q3, with a total reduction of at least 100 basis points by the end of 2024.

The S-REIT sector is currently trading at an 11% discount to its fair value, with an average trailing twelve-month (TTM) yield of 6.37%. Despite the recent rally, valuations and distribution per unit (DPU) yields remain attractive. Investors may consider locking in the current yield at a discounted valuation, while awaiting a potential valuation re-rating in response to the anticipated interest rate cut by the end of 2024.

US 10 Year Risk Free Rate

 

Kenny Loh is a Wealth Advisory Director and REITs Specialist of Singapore’s top Independent Financial Advisor. He helps clients construct diversified portfolios consisting of different asset classes from REITs, Equities, Bonds, ETFs, Unit Trusts, Private Equity, Alternative Investments, Digital Assets and Fixed Maturity Funds to achieve an optimal risk adjusted return. Kenny is also a CERTIFIED FINANCIAL PLANNER, SGX Academy REIT Trainer, Certified IBF Trainer of Associate REIT Investment Advisor (ARIA) and also invited speaker of REITs Symposium and Invest Fair.  You can join my Telegram channel #REITirement – SREIT Singapore REIT Market Update and Retirement related news. https://t.me/REITirement

Continue ReadingSingapore REITs Monthly Update (September 8th, 2024)

Exclusive Interview with Elite UK REIT: Landlord to the UK government – 3 months advance rental advantage

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Together with The Financial Coconut, I managed to interview Josh, the CEO of Elite UK REIT. In this episode of The Financial Coconut, we dive into the intriguing world of REITs with Josh. This isn’t just any REIT – Elite UK REIT is the only GBP-listed REIT on SGX, boasting a unique portfolio of social infrastructure properties leased to the UK government. Think stable and low-risk cash flows from job centres managed by the Department of Work and Pensions. Josh spills the beans on some exciting plans to supercharge returns, like converting properties into student accommodations and data centres.

This game-changing strategy promises to boost the REIT’s value while keeping those solid government-backed leases intact. We also venture into the murky waters of UK political changes and what they might mean for Elite UK REIT. With the UK’s rock-solid legal framework and economic stability, Elite UK REIT could be your golden ticket to diversifying and gaining a foothold in UK real estate. Curious about how they’re navigating the market and plotting their future moves? Tune in and find out now!

Key Pointers:

 

  • 00:00 Government as a reliable tenant
    • Pays three months in advance
    • Provides stable cash flow
    • Allows for better cash management
  • 01:00 Introduction of the speakers
    • Hosted by Reggie and Kenny
    • Guest: Josh, CEO of Elite UK REIT
    • Discussion on UK real estate market
  • 02:01 Elite UK REIT’s focus
    • Properties leased to UK government
    • Emphasis on social infrastructure
    • Listed in Sterling Pounds on SGX
  • 06:01 Investment strategy and changes
    • Transition from commercial to social REIT
    • Focus on sustainability and ESG
    • Expansion into residential and student accommodation
  • 10:00 Advance rental payments
    • Government pays three months in advance
    • Helps maintain cash flow
    • Used to reduce debt
  • 11:01 Single tenant risk
    • Government as a reliable tenant
    • Strong negotiating position
    • Collaborative relationship
  • 12:01 Sustainability upgrades
    • Incentives for long leases
    • Focus on social impact
    • Upgrades to improve sustainability
  • 19:51 Potential property conversions
    • Exploring higher and better uses
    • Student accommodation and data centers
    • Leveraging strategic locations
  • 22:00 Data center opportunities
    • Proximity to new data cable
    • Potential for renewable energy use
    • Low latency and high demand
  • 24:56 Power and renewable energy
    • 60 Mega MVA reserved
    • Pathway to renewable energy
    • Importance of secure power
  • 26:12 AI and data centers
    • AI’s impact on data centers
    • Hyperscalers’ demand for secure sites
    • Opportunistic data cable landing point
  • 28:11 Housekeeping and refinancing
    • Successful equity fundraising
    • Negotiating with banks
    • Replacing lenders for better terms
  • 30:05 Asset optimization
    • Changing land use for data centers
    • Reducing gearing below 40%
    • Converting vacant assets to student accommodation
  • 34:00 Permitted development rights
    • Automatic conversion from office to residential
    • Addressing housing shortages
    • Government’s leveling up agenda
  • 40:01 Financial flexibility and market strategy
    • Lower leverage for flexibility
    • Focus on social infrastructure and living sectors
    • Engaging with investors and promoting REIT’s value

As investors, we’re always on the lookout for unique opportunities that can diversify and strengthen our portfolios. Enter Elite UK REIT, the first and only GBP-denominated REIT listed on the SGX. This unconventional REIT owns a portfolio of job centers leased to the UK government, generating stable cash flows backed by a sovereign tenant.

🔷 Discover how this REIT capitalises on the UK’s robust social welfare system
🔷 Discover how Elite UK REIT generates stable cash flows
🔷 Uncover their plans to unlock higher and better use for vacant assets
🔷 Gain insights into their lease renewal strategies and the potential for rent increases beyond 2028 📈

With a strong balance sheet and supportive long-lease tenants, Elite is well-positioned for opportunistic growth. Could portfolio renovations help narrow its large NAV discount over the next 12 months?

Whether you’re a seasoned REIT investor or considering your first foray into the space, this inside look at Elite UK REIT’s unconventional yet thriving model is a must-listen. Tune in to weigh the potential of adding this unique opportunity to your portfolio.

Kenny Loh is a Wealth Advisory Director and REITs Specialist of Singapore’s top Independent Financial Advisor. He helps clients construct diversified portfolios consisting of different asset classes from REITs, Equities, Bonds, ETFs, Unit Trusts, Private Equity, Alternative Investments, Digital Assets and Fixed Maturity Funds to achieve an optimal risk-adjusted return. Kenny is also a CERTIFIED FINANCIAL PLANNER, SGX Academy REIT Trainer, Certified IBF Trainer of Associate REIT Investment Advisor (ARIA) and also an invited speaker of REITs Symposium and Invest Fair.  You can join my Telegram channel #REITirement – SREIT Singapore REIT Market Update and Retirement-related news. https://t.me/REITirement

Continue ReadingExclusive Interview with Elite UK REIT: Landlord to the UK government – 3 months advance rental advantage