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

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REITspots: IREIT Global’s Properties (Overseas Site Visit)

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On the second edition of REITspots, we travel to Barcelona, Spain to visit 2 properties belonging to IREIT Global (SGX: UD1U). This time round, gain an exclusive look inside the 2 properties, Saint Cugat Green and Parc Cugat.

Put on your walking shoes and grab your investment hat, because REITsavvy is taking you on a stroll through the exciting world of REIT properties with our brand-new series: REITspots! Whilst at one of the properties, I got to briefly talk to Charles de Molliens, Vice President Real Estate Private Equity at Tikehau Capital. Throughout this article, you’ll get to know more about the properties and IREIT Global itself.

 

IREIT Global


 
 

 

Source: reitsavvy.com – IREIT Global’s financial ratios

R | SPI

 

Overview


IREIT Global owns 2 properties, namely Saint Cugat Green (€44.6 mil valuation) and Parc Cugat (€27.0 mil valuation). This visit was done on a Monday afternoon, therefore there’ll be a good indication of occupancy and ‘liveliness’ of the area. The properties are about 1.5 hours from the Barcelona Airport and about a 30 min drive from the city centre.

Saint Cugat Green (left) and Parc Cugat (right)

Taking public transportation, Parc Cugat is a mere 5 mins’ walk from St Joan Station, which is also a 30 min train ride from the city centre. For Sant Cugat Green, it is a 5 mins’ bus ride (or a 30 mins’ walk) from St Joan Station.

St Joan Station. The business park, where Parc Cugat is in, is visible from the station.

Saint Cugat Green


“Sant Cugat Green is a modern office building in Barcelona with a 5,256 sqm data centre space and a restaurant for internal use by its tenants. The property comprises three basement levels, a ground floor and four upper floors, and 580 parking spaces (of which 30 are for motorbikes). The property has floor plates with more than 3,000 sqm situated around a central atrium and enjoys good natural light throughout the building. Sant Cugat Green is LEED Gold certified.” – IREIT Global’s website.

On first glance, this property looks very modern both from the outside and inside. I was only allowed to access the lobby area inside the gated area, as this is a mainly data centre focused building. Data centres are stricter in general due to confidentiality. You may ask, doesn’t IREIT Global specialise in Office properties?

Q: You have acquired Sant Cugat Green not too long ago. Are you looking to diversify and move towards Data Centres?


Charles: Not really. It is only because Sant Cugat Green was formerly a Data Centre operated by Deutsche Bank. After they moved out, we bought the property and have leased it to various companies such as HP. As the building was built back in 1993, we have renovated the building in 2022 and now it is currently tenanted to Oxigent Technologies. Their lease is due to end in 2034.

Parc Cugat


“Parc Cugat is a modern office building situated within a business park in the office market of Sant Cugat del Vallès (Barcelona), which offers various services such as restaurants and hotels, as well as an efficient transport connection to the city of Barcelona. The property is located just 3km from Sant Cugat Green. The building consists of 12,000 sqm of office space, an auditorium with capacity for 200 people and more than 400 parking spaces for cars and motorcycles. With a modern façade and a versatile space distribution, the property comprises four basement levels, a ground floor and four upper floors with more than 2,000 sqm. Parc Cugat is LEED Silver certified.” – IREIT Global’s website.

For Parc Cugat, I was able to gain access and tour the property in depth. This was a very insightful visit of one of IREIT Global’s properties. Enjoy the slideshow.

Parc Cugat is located within a Business Park, Sant Cugat del Vallès

This property is still undergoing minor works, such as the ongoing enhancement of the common terraces. For example, new automatic water pipes are being installed, and flowers and trees have also been ordered.

 

Common Areas

 

Office Spaces

Occupancy of Parc Cugat is reported to be only 61.1%. Judging by the untenanted office spaces, it is easy to see why. However, one of these office spaces have already a Letter of Intent to be let, although it is still not confirmed.

IREIT Global’s ESG efforts

One notable observation of Parc Cugat that is clearly visible is their intent to meet ESG targets (at least for the environmental aspects). A trip to the rooftop reveals arrays of solar panels, to provide clean solar energy for the office building.

Rooftop

 

Bonus: IREIT’s leasing strategy

Charles: Most of IREIT’s tenants (and in Europe) have a mandatory minimum leasing period (i.e. tenants must pay a penalty is they leave early). For example, in Germany, it may be 10 years, while in Spain it can be 4-5 years. 

 

Conclusions


This site visit to IREIT Global’s properties has been eye opening. I got to see first-hand ongoing Asset Enhancement Initiatives (AEIs) of office buildings as well as the initiatives that REITs are taking as part of their ESG Commitment. Lastly, I would like to thank Charles de Molliens, Vice President Real Estate Private Equity at Tikehau Capital for his time.

 

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

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Manulife US REIT: Missing Expectations, but Promising Future if…

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The earning season is well underway with 13 REITs yet to report Q4 2021 results. Of the 26 REITs that have reported results (as of 13th Feb 2022) a majority (15) have reported a positive year-on-year change in NAV/Unit. 3 REITs reported no change in NAV/Unit, while 8 REITs have reported a negative year-on-year change in NAV/Unit. The chart below shows the y-o-y change to NAV/Unit.

 

MUST’s 2H FY2021 Results


 

 

2 REITs standout in this table. First REIT (SGX:AW9U) with a -26.61% in NAV/Unit and Manulife US REIT (SGX:BTOU) with a -8.22% in NAV/Unit. First REIT’s NAV drop can be attributed to the issuance of 791,062,223 rights units on 24 February 2021, as well as the restructuring of the REIT. The graphs below show the NAV/Unit, Gearing Ratio and Distribution Trends since MUST’s inception.

 


A Summary of Manulife US REIT’s fundamental and financial ratios. Source: StocksCafe REIT Screener

 

Since its inception, MUST’s NAV/Unit has been dropped from US$0.84 in Q3 2016 to US$0.67 in Q4 2021, a CAGR of -4.22%. Its gearing ratio has increased from 36.8% to 42.8% in the same time period.

 

Manulife US REIT (SGX: BTOU) Net Asset Value / Unit since inception, CAGR: -4.22%. Source: StocksCafe REIT Screener
 
Manulife US REIT (SGX: BTOU) Gearing Ratio since inception. Source: StocksCafe REIT Screener
 

 

The above (and below) data of MUST (and all 39 other REITs) can be found on the StocksCafe REIT Screener. Use code “kennyloh” for one free month.

MUST’s DPU trend has been relatively stable since its inception, however. It has reported a 2HFY2021 DPU of 2.63 US cents, up 1.5% y-o-y. This has resulted in a very attractive trailing-twelve-months yield of 8.08%, which is much higher than the S-REIT average of 5.97% on February 5th, when we published the S-REIT February Monthly Market Update.

 

Manulife US REIT (SGX: BTOU) DPU graph since inception. Source: StocksCafe REIT Screener

 

We decided to reach out to Manulife US REIT, with regards to the increasing gearing trends and declining NAV per Unit trends for the past 5 years. The following is their response.

 

Jill Smith, CEO of MUST: Gearing has been negatively impacted by COVID-19 due to appraiser assumptions of higher vacancies, higher tenant incentives and leasing commissions, and lower/zero rent growth in the first two years. NAV per unit has declined over the same period due mainly to fair valuation losses and factoring in also the recent private placement priced at a discount of US$0.649 below the NAV per unit.

That said, we have started to see positive valuation of 0.4% for same-store in 2H 2021. Also, in the past year, we have been minimising expenses and deferring non-essential capital expenditure, while focusing on leasing. In 2022, MUST has plans to rejuvenate the portfolio (e.g. disposition of lower cap assets, swapping for higher yielding assets) by increasing its exposure to high growth cities/tenants, recycle capital, and raise a higher portion of equity versus debt for future acquisitions in order to contain gearing.

 

Analysts have maintained their ‘buy’ calls in their reports, despite MUST’s 2H FY2021 results missing expectations.

 
 

MUST is the Highest Rated S-REIT in MSCI ESG ratings


MUST is a frontrunner in achieving sustanability goals, with a 5-star GRESB (Global ESG Benchmark for Real Assets) Rating and an MSCI ESG Rating of AA. This is on par with Capitaland Invest, higher than Capitaland Integrated Comemrcial Trust, Keppel REIT and Keppel DC REIT (all with A ratings).

 

 
Manulife US REIT is a promising REIT, with a clear emphasis on sustainability. With a current attractive ttm yield of 8.08%, MUST has the potential to be a promising REIT. However, it remains to be seen whether MUST can turnaround its negative gearing and NAV trends, and deliver on their promises.
 
 
Kenny Loh is a Senior Financial Advisory Manager 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
 
You can join my Telegram channel #REITirement – SREIT Singapore REIT Market Update and Retirement related news. https://t.me/REITirement
Continue ReadingManulife US REIT: Missing Expectations, but Promising Future if…