OUE Commercial REIT Leapfrogs to Next Growth Stage

Date: July 15, 2020


As American poet and author Maya Angelou once famously said, “Make a mark on the world that can’t be erased”, banking and finance veteran Tan Shu Lin aspires to do just that.

“I would like to be a successful leader who inspires people to reach their fullest potential,” said the Chief Executive Officer of the manager of SGX-listed OUE Commercial Real Estate Investment Trust (OUE C-REIT).

“At the end of the day, it’s not only about growing the REIT in terms of assets and cashflows, but also the intangibles, such as grooming talent in the team, and fostering a strong, positive corporate culture.”

The Bachelor of Arts graduate with First Class Honours in Economics from the University of Portsmouth began her career in various financial institutions, where she handled capital markets advisory, fund-raising and private equity investing.

In 2001, she was ushered into the world of real estate and real estate investment trusts through her role in Ascendas Funds Management Pte Ltd, which was the manager of Ascendas Real Estate Investment Trust (A-REIT), the second REIT to list on SGX in 2002.

“That brought me into a corporate environment where real estate, financial services and financial markets converged,” recalled Tan, who spent six years at A-REIT, rising to Head of Capital Markets.

After a stint at the wealth management unit of UBS as Director of Real Estate Investment Management from 2007 to 2008, the Chartered Financial Analyst rejoined A-REIT and became responsible for its overall strategic direction, as well as operational and capital structure.

Fast-forward to October 2013, and appointed to helm the manager of OUE C-REIT, Tan has come full circle. “Within the operating environment of the REIT, and just like in any corporate setup, it’s a marathon, not a sprint,” she said.

“We start with an idea, and develop it to fruition. In everything that you do, you keep the long-term perspective in mind.”

For Tan, the last six years – between 2014 and 2019 – were the most satisfying period of her career. “That’s when I oversaw the four-fold expansion of OUE C-REIT’s assets, growing it from S$1.6 billion to S$6.8 billion, following several corporate actions, including a merger with OUE Hospitality Trust.”

And completion of the merger – spanning nine months – was a high point.

“The whole exercise was predicated on the need for size,” Tan recalled. “We’ve seen a bifurcation of the Singapore REIT market over time, where two distinct camps have emerged – small-cap vs large-cap REITs, with the latter dominating investor flows and attention.”

It proved to be a long, complicated journey. For one, the merger proposal was a bold, unprecedented move. “Because it involved two different asset classes, there were a myriad of questions over whether we could carry it off and how investors would react,” she added.

Obtaining the requisite legal and regulatory approvals was also a challenge. “On many occasions, there were no prior examples for us to fall back on. It all boiled down to just soldiering on, pressing forward, to try to make it happen.”

New Beginnings

All of that now is in the rear-view mirror, and there are no regrets. “We’re really savouring the fruits of our labour, and the benefits are obvious. We have a much larger market capitalisation, increased trading liquidity, higher visibility on investors’ radar, and more participation during our roadshows.”

The REIT’s increased size makes it not only more resilient, but also better able to access increased funding and competitive sources of capital, allowing it to undertake larger transactions and asset enhancement initiatives with greater ease and speed.

“The merger has helped us to leapfrog to where we are now, and that’s just the beginning,” Tan added.

OUE C-REIT listed on SGX with just two commercial assets in January 2014, and doubled the number of assets in its portfolio by 2018. Following its merger with OUE Hospitality Trust, the REIT now owns seven properties across the commercial and hospitality segments in Singapore and Shanghai, comprising approximately 2.2 million square feet of prime office and retail space, as well as 1,640 upscale hotel rooms.

Landmark assets in Singapore include the Mandarin Gallery mall along Orchard Road, as well as the Mandarin Orchard Singapore hotel. Its Grade A commercial buildings in the city-state comprise One Raffles Place, OUE Bayfront and OUE Downtown Office. In Shanghai, the REIT owns Lippo Plaza, situated along Huaihai Zhong Road, within the established commercial district of Huangpu in Puxi.

The enlarged asset base bodes well for OUE C-REIT’s future. “We now have more options to grow the REIT portfolio, as the number of properties has increased, and include mixed-use developments. This provides us with the flexibility to carry out asset recycling,” Tan noted, referring to the process where assets – which may have reached an optimal stage in their life cycle – are sold to raise capital for new investments.

With the future of land use focusing on integrated or mixed-use developments, a portfolio that has exposure to more than one property segment offers an edge. “One sector can mitigate the downturn from another, as we have seen with COVID-19,” she pointed out.

“The office segment, which accounts for about 60% of total portfolio revenue, has been a very stable part of our business, helping to mitigate declines in our hospitality and retail, which contribute approximately 20% each to our overall portfolio revenue post-merger.”

As at 31 March 2020, OUE C-REIT’s commercial segment had a committed occupancy level of 94.3%. In the first quarter of the year, its Singapore office properties achieved positive rental reversions of between 7.9% and 16.7%.

While the supply of new Grade A office space remains limited in the medium term, both occupancy and office rents are expected to face downward pressure given the current economic climate.

“OUE C-REIT’s office portfolio is expected to continue achieving committed rents, which are in line with or above market rents,” Tan noted. “As expiring rents are below current market rents, our operating performance is expected to remain resilient.”

To mitigate the 43% year-on-year slump in international visitor arrivals to Singapore in the March quarter, OUE C-REIT’s hotel properties have implemented cost-containment measures and sought alternative sources of demand. These include guests on self-isolation stays, the frontline healthcare workforce, as well as workers affected by border shutdowns.

The minimum rent component of S$67.5 million per annum, under the master lease arrangements of its hotels, offers downside protection, while recent Singapore government assistance packages, such as wage and tax reliefs, provide an added buffer.


“COVID-19 has impacted everyone. But the question is how do you use the downtime, and what should you do to future-proof yourself?” Tan said.

OUE C-REIT plans to capitalise on the weak operating environment to re-brand Mandarin Orchard Singapore as Hilton Singapore Orchard, with the addition of new income-generating spaces to create value and drive sustainable returns.

“The domestic hotel segment will likely remain weak until the first half of next year, while MICE events will probably return from late 2021 onwards,” Tan said, referring to meetings, incentives, conferences and exhibitions.

“This makes it ideal for us to undertake asset enhancement initiatives during this period, so as to catch the return wave in 2022.”

Refurbishment works will take place from the current quarter, with the re-branded hotel set to become Hilton’s flagship in Singapore, and the largest in Asia Pacific when it relaunches in 2022.

OUE C-REIT will invest approximately S$90 million over the period of phased renovations, and based on the projected incremental net property income on a stabilised basis, the expected return stands at about 10%.

In China, the REIT will focus on retaining tenants and keeping occupancy rates stable, Tan noted. Office leasing momentum in the Shanghai CBD Grade A market slowed in the first quarter, and rents corrected 4.2% quarter-on-quarter. Given the significant office supply pipeline, which is expected to peak only after 2021, rents will likely remain subdued in the near term.

“Since the end of April, after the Chinese economy and businesses restarted, occupancy levels have hovered above 80%,” she added.

In Singapore, the REIT remains committed to support tenants through this challenging period. Since March 2020, OUE C-REIT has implemented various relief measures to affected tenants to help cushion the impact of COVID-19. It will explore further initiatives to support tenants as required in the long-term interests of all stakeholders.

While the REIT is focused on managing the fallout from COVID-19 in the near term, it is also keeping an eye on medium- to longer-term growth targets.

“The merger is just a means to an end – we cannot stop here,” Tan said. “The combined entity provides us with a larger platform to move to the next stage, where we will seek to acquire suitable assets beyond our domestic shores.”

Office assets will still be OUE C-REIT’s mainstay as this defensive segment of the real estate market offers more resilient cashflows than hospitality or retail sectors.

But local opportunities remain limited, she admitted. “Most Grade A office properties in Singapore are already owned by other REITs or in institutional hands – that’s why we need to spread our wings abroad.”

Aside from the pandemic, other factors that tend to keep the 47-year-old up into the wee hours include the global economy and geopolitical risks.

“If you look at the world over the last two to three years, there has been an increase in unprecedented events, such as Brexit and now, COVID-19,” she said.

“No doubt, the human race is highly adaptable, and we will adjust in line with evolving circumstances. As for those circumstances that are outside our control, all we can do is trust God.”

For the mother of two girls and a boy, aged eight to 16, spending time with family remains a priority. “I want them to grow up with the right values, not the least of which is honouring God with their lives,” said Tan.

Building resilience is a must, she added. “Life is full of ups and downs – hopefully, more ups than downs. How they deal with adversity as they journey through life is one defining characteristic that will set them apart from everyone else.”

OUE Commercial REIT

OUE C-REIT is a real estate investment trust listed on SGX Mainboard since 27 January 2014. OUE C-REIT completed the merger with OUE Hospitality Trust in September 2019 to become one of the largest diversified REITs with total assets under management of S$6.8 billion. With seven properties across the commercial and hospitality segments in Singapore and Shanghai, OUE C-REIT’s portfolio comprises approximately 2.2 million sq ft of prime office and retail space, and 1,640 upscale hotel rooms. OUE C-REIT invests in income-producing real estate used primarily for commercial purposes (including real estate used for office and/or retail purposes) in financial and business hubs, and/or hospitality and/or hospitality-related purposes, as well as real estate-related assets. OUE C-REIT is managed by OUE Commercial REIT Management Pte Ltd, which is a wholly owned subsidiary of OUE Ltd.

The company website is: www.ouect.com.

Click here for the company’s StockFacts page.

For the three months ended 31 Mar 2020 financial results, click here.


First published on SGX website on 3 July 2020

About kopi-C: the Company brew

Text: Jennifer LH Tan
Photo: Company file

kopi-C is a regular column on the SGX Research website that features C-level executives of leading companies listed on Singapore Exchange. These interviews are profiles of senior management aimed at helping investors better understand the individuals who run these corporations.

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