Analysts mixed on OUE REIT after FY2024 results

FY2024 DPU, however, fell by 1.4% y-o-y to 2.06 cents despite the lower capital retention of $5 million from last year’s $8 million and the capital distribution from the OUE Bayfront divestment.

OIR expects greater stability in the REIT’s performance

OIR’s Donovan Tan likes the REIT’s “stable” results, which came in line with his expectations. The REIT’s FY2024 DPU, however, stood above his forecasts due to the reduction in working capital retention in the 2HFY2024. Excluding the amount, the REIT’s FY2024 DPU would also come in line with his full-year estimates.

Following the divestment of its Shanghai property, Lippo Plaza, at the end of 2024, Tan believes that the REIT’s pure-play Singapore portfolio, which comprises high-quality assets strategically situated in prime locations, will “support resilient returns and attract demand even in a slowing growth environment”.

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In addition, with its significantly improved capital structure and increased capacity in its balance sheet, the analyst believes that the REIT’s 48% discount to book value is “unwarranted” and sees “increasingly positive sentiment” moving forward.

Tan also likes the REIT manager’s plans for the Lippo Plaza proceeds, which is for acquisition opportunities in gateway cities instead of pursuing share buybacks despite the REIT’s units trading at a significant discount.

“We are positive about this development, given that a major concern for us was the capital constraints that restricted growth opportunities,” he writes in his Jan 24 report. “We also concur with management's perspective on the share buyback, as it would prioritise short-term gains while potentially forgoing long-term growth opportunities and reverting to a ‘capital-restricted’ state.”

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However, he warns that the REIT is still in discussions with the tax authorities regarding the disposal, and that it may take time for the funds to be repatriated back to Singapore.

On the whole, though, the analyst commended the REIT for its moves to optimise its capital structure and enhance its financial flexibility by increasing the proportion of unencumbered assets and achieving an investment grade (IG) credit rating.

“These developments are positive steps toward restoring investor confidence in the REIT, and we anticipate continued improvements in sentiment and greater stability in performance moving forward,” he says. In addition to his “buy” call, Tan has higher fair value estimate of 34.5 cents from 34 cents previously.

Maybank likes the REIT’s ‘resilient operations’

Maybank Securities analyst Krishna Guha has also kept his “buy” call with an unchanged target price of 34 cents following OUE REIT’s “resilient operations”.

The REIT reported a set of healthy operating metrics including higher revenue and net property income (NPI) for the 2HFY2024, relatively stable office occupancy, revenue per available room (RevPAR) growth for its hotels while Singapore offices supported its portfolio value.

Guha also liked the REIT’s balance sheet after its Shanghai divestment shored up its cash level.

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Factoring in the divestment, lower RevPAR growth and other adjustments, however, the analyst has lowered his DPU forecast for FY2025 by 0.5% but sees better DPU prospects in FY2026 as he lifts his estimates by 0.8%.

PhillipCapital highlights de-risked portfolio

PhillipCapital analysts Liu Miaomiao and Paul Chew believes OUE REIT has been “substantially de-risked” after divesting its only overseas property in Shanghai. With the divestment, the REIT has effectively transformed itself into a pure-play Singapore REIT with 100% of its revenue generated from AA-rated assets, Liu and Chew note.

To account for the Shanghai divestment and the higher-for-longer interest rates, the analysts have lowered their FY2025 and FY2026 DPU estimates by 12% and 10% to 1.88 cents and 1.95 cents respectively. But they see the REIT’s DPU continuing to be supported by resilient mid-single-digit rental reversion for its office portfolio and high-single digit rental reversion for its retail segment.

Like OIR’s Tan, the REIT’s FY2024 DPU outperformed Liu and Chew’s forecast by 12% due to the reduced capital retention and additional top-up from the divestment of the 50% stake in OUE Bayfront.

In their Jan 27 note, the analysts like the REIT’s robust rental reversion and peaking cost of borrowing, although they note the lower valuations for Mandarin Gallery and Hilton Singapore Orchard, which declined by 0.6% y-o-y and 2% y-o-y respectively.

“The decrease is attributed not to cap rate expansion but to a moderated outlook for the hospitality and retail sectors, following a high base in 2024,” they write.

Liu and Chew are also concerned over the “soggy” hospitality outlook with OUE REIT expecting RevPAR growth to be moderate in 2025 due to a lacklustre event schedule and the absence of mega concerts.

With the Lippo Plaza divestment in Shanghai, the PhillipCapital analysts believe that it is a good time for the REIT to pare down its debt from the proceeds. The property had an NPI yield of 4.2%, which is lower than the current average cost of debt at 4.7%, they note.

Liu and Chew have kept their “buy” call with an unchanged target price of 40 cents.

CGSI lowers TP to factor in Shanghai divestment

Even though OUE REIT’s 2HFY2024 and FY2024 DPU were also in line with CGS International analyst Lock Mun Yee’s forecast, the analyst has lowered her FY2025, FY2026 and FY2027 DPU estimates by 5.8%, 4.7% and 3.4% to factor in the income gap stemming from the Shanghai divestment.

Lock has kept her “hold” call with a lower target price of 32 cents from 34 cents for the same reasons.

As at 10.39am, units in OUE REIT are trading 0.5 cents higher or 1.67% up at 30.5 cents.