OUE's exposure to mutual fund screwed Q1 profits

The company, which lost $8.13m from the fund, said it is subject to market volatility.

The first quarter of 2018 was ugly for OUE as its profits were cut by 90.7% in a year from $11.06m to $1.03m. It had blamed a non-cash fair value loss on its investment in a mutual fund.

According to its financial statement, it lost $8.13m due to the non-cash item. The company told Singapore Business Review, "The mutual fund is subject to marked-to-market valuation on each reporting period and therefore is subject to market volatility." In a new report, OCBC Investment Research analyst Joseph Ng said the loss "weighed significantly on the bottom-line."

It was previously reported that OUE injected $254.2m in Nuvest Real Return Fund in 2014. The fund is a Cayman Islands-domiciled exempted mutual fund and was launched in 2012 with seed capital from GIC.

OUE subscribed for Tranche X participating shares, which is made available only to key cornerstone investors.

"The fee structure includes a 1% management fee of NAV and a 10% performance fee equal to the appreciation in NAV during each performance period, subject to a high water mark and adjusted by the hurdle rate," OCBC Investment Research said in 2014.

However, Ng said investors should look past the loss and focus on the group’s favourable position in this part of the cycle across various sectors.

"On the hospitality front, the group’s assets should benefit from the return of large biennial events in Singapore, as we generally expect industrywide RevPAR growth to accelerate further in the coming quarters. The group’s office assets are also well-positioned to ride on the general uptick in spot rents," Ng said.

In order to record positive figures in the following quarters, OUE said the asset enhancement initiatives at OUE Downtown will continue to boost recurring income base for the Group. It mentioned that its earnings before interest and tax (EBIT) jumped 56% to $54.6m due to higher contribution from Downtown Gallery and Oakwood Premier OUE Singapore.

"Besides current operation, we continue to look for strategic opportunities locally and geographically that can be transformed through value creation and enhance shareholder’s returns," it said.