OUE REIT's portfolio now comprises six assets located in Singapore; three office assets — OUE Bayfront, One Raffles Place and OUE Downtown Office; two hotels — Hilton Singapore Orchard and Crowne Plaza Changi Airport; and retail mall Mandarin Gallery.
On a same-store basis, 1HFY2025 NPI and revenue slipped 2.0% and 2.7% y-o-y respectively, weighed down by lower contribution from Hilton Singapore Orchard but partially cushioned by continued strength in the office segment.
OUE REIT’s commercial segment reported 5.1% NPI and 3.6% higher revenue y-o-y in 1HFY2025 on a same store basis, while rental reversion came in at +9.1% while occupancy remained high at 95.5%.
OUE REIT has 36.8% of leases expiring in FY2026, including from top 10 tenants like Deloitte’s, Bank of America and Allen & Overy. Management said negotiations are in various stages of progress.
See also: OUE REIT reports DPU of 0.98 cents for 1HFY2025, up 5.4% y-o-y
While gearing of 40.3% and cost of debt of 4.2% were largely stable q-o-q, cost of debt has declined since 1QFY2025, resulting in finance cost savings of some $9.4 million y-o-y, say Lock and Li in a July 25 report.
“Notably, according to management, its share of OUE Allianz Bayfront borrowing of $311 million will be refinanced early in 3QFY2025 at lower cost and contribute positively to interest cost savings in FY2026,” they add.
Hence, the CGSI analysts are staying “add” on OUE REIT with an unchanged target price of 33 cents, above most peers.
See also: JP Morgan upgrades Suntec REIT to 'overweight' on better occupancy, lower interest cost
The only brokerage with a higher target price is Phillip Securities, at 40 cents.
Uncertain times
OCBC Investment Research’s Ada Lim says the 1HFY2025 results met her expectations, though the REIT’s commercial and hospitality segments continue to diverge in performance.
The hospitality segment was a drag on the portfolio during the period, with 1HFY2025 revenue and NPI down 12.9% and 11.7% y-o-y respectively.
Revenue per available room (RevPAR) was down 13.4% y-o-y at $233, weighed down by high base effects at Hilton Singapore Orchard, recent new supply along Orchard Road and cautious travel spending in 1H2025.
Still, OCBC’s Lim concurs with CGSI on OUE REIT’s improved capital management metrics.
“Management shared that a 25-basis point (bp) decline in interest rates would improve distribution per unit (DPU) by 0.03 cents. All things considered, we finetune our forecasts, and raise our FY2025 and FY2026 DPU forecasts by 6.2% and 1.1, respectively. There could be upside risk to our forecasts if rental reversions for the commercial segment continue to come in stronger than expected,” writes Lim.
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In a July 24 note, Lim stays “buy” on OUE REIT but with a higher target price of 33.5 cents, up from 31.5 cents previously.
Hotel headwinds
Maybank Securities analyst Krishna Guha is relatively conservative on OUE REIT’s latest set of results, noting that the REIT faces “hotel headwinds” and high gearing.
In a July 25 report, Guha maintains “hold” on OUE REIT but with a higher target price of 30 cents from 28 cents previously.
Guha notes that Hilton Singapore Orchard’s RevPAR fell 21% y-o-y, while Crowne Plaza Changi Airport “continued to track well” with 4.8% y-o-y RevPAR growth.
According to him, management’s focus is on securing more group business for Hilton Singapore Orchard and more proactive booking management.
Units in OUE REIT closed 0.5 cents lower, or 1.6% down, at 30.5 cents on July 28.
