In her Jan 27 report, Ada Lim of OCBC Group Research states that OUE REIT’s finance cost fell 17.6% y-o-y, as management’s efforts to optimise its balance sheet over the past few years bore fruit, coupled with a declining interest rate environment.
“Consequently, the amount to be distributed rose 8.9% y-o-y to $123.8 million. This translated to a full year DPU of 2.23 Singapore cents, which was 8.3% higher y-o-y and exceeded our forecast by 7.6%,” says Lim.
Despite a “shaky performance” from its retail and hospitality segment, Lim believes that both segments are expected to improve in FY2026 given a new management team in place for Hilton Singapore Orchard and positive feedback from the popup strategy to drive footfall and tenant sales at Mandarin Gallery.
Meanwhile, OUE REIT continues to see Singapore as its core market. While the potential partial stake acquisition in Salesforce Tower has not been confirmed, management said that it will look to fund it with divestment proceeds rather than tapping the equity market.
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“We raised our FY2026 DPU projection by 9% and introduced our FY2027 forecasts. As a result, our fair value estimate lifts from 36 cents to 40 cents and reiterates our “buy” rating,” concludes Lim.
Meanwhile, CGS International’s Lock Mun Yee and Li Jialin raise their target price for OUE REIT, from 38 cents to 41 cents on back of management's positive view on rental reversions for commercial assets and better outlook for the hospitality segment, driven by a stronger event calendar.
The team also predicts that OUE REIT will have “ample dry powder” to support growth ahead.
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“Further interest expense savings will likely come from the refinancing of interest rate swaps (IRS) and the $150 million medium-term note (MTN) in FY2026, in our view. We estimate OUE REIT has over $300 million of debt headroom before gearing reaches 45%,” both Lock and Li states.
Beyond acquisitions, management remains open to other value creation initiatives for its Singapore assets, including divestment of mature assets and value-accretive AEIs.
“Management is also in advanced discussions with the regulatory authorities to convert in-building chiller system areas into office space at OUE Bayfront,” the team concludes.
For DBS Group Research analyst, Tabitha Foo, she continues to see OUE REIT’s commercial portfolio to be a strong pillar for the REIT, while hospitality performance is likely to have bottomed out.
In her Jan 28 report, she points out that OUE REIT’s three office assets - OUE Bayfront, One Raffles Place and OUE Downtown - continue to see robust leasing momentum following consecutive quarters of positive rental reversion and higher average passing rents.
“We anticipate mid-single-digit reversionary prospects over the next two years as core CBD Grade A office supply stays constrained amid a flight-to-quality trend. Meanwhile, we see early signs of turnaround at Hilton Singapore Orchard that could gain traction this year,” explains Foo.
As such, she is maintaining her “buy” call on OUE REIT with a higher target price of 45 cents, as compared to the previous target price of just 40 cents.
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“We adjust our estimates to reflect significantly higher interest savings, resulting in revised DPU forecasts of 2.41 cents and 2.57 cents for FY2026 and FY2027 respectively. Forward yield of nearly 6.5% remains attractive in our view,” concludes Foo.
Finally, Liu Miaomiao of Maybank Securities lifts her target price for OUE REIT, from the previous 38 cents to 45 cents.
In her Jan 28 report, she expects the new management team at Hilton Singapore Orchard likely to result in stable performance and 2% to 5% RevPAR growth in FY2026.
Meanwhile, OUE REIT’s management is in active discussion with tenants for large leases due for renewal in FY2026, which constitutes around 19% of gross rental income.
OUE REIT shares that retention demand indicated to be strong, although additional capex cannot be ruled out.
On the other hand, Liu expects mid-single digit rental reversion for the office segment and high-single digit for the retail segment in FY2026.
On the debt cost front, OUE REIT’s cost of debt fell by 20 basis points to 3.9% with a further 30 basis points saving expected in FY2026 as 11.5% of debt is due for refinancing at lower margins.
“We raise our FY2026 and FY2027 DPU by 3.4% and 2.3% respectively, factoring in higher RevPAR assumption for hotels, lower borrowing costs and lower cost of equity assumption,” concludes Liu.
As at 2.00pm, units in OUE REIT are trading flat at 37.5 cents.
