CGSI analysts Lock Mun Yee and Li Jialin even upgraded OUE REIT to "add" from "hold", noting the REIT's "undemanding valuation" with price-to-book value at 0.47 times.
In an April 28 note, Lock and Li say there are potentially more interest savings ahead. "Management expects further interest expense savings from a lower base rate when its share of OUE Allianz Bayfront borrowing of $311 million is re-financed in 2HFY2025."
The CGSI analysts raise their FY2025-2027 distribution per unit (DPU) estimates by 3.8%-4.5% to factor in interest savings, partially offset by their lower revenue forecasts for the Singapore hospitality segment.
OUE REIT's two hotels, Hilton Singapore Orchard and Crowne Plaza Changi Airport, are cause for concern to OCBC Investment Research analyst Ada Lim, who maintained "buy" in an April 25 note but with a lower target price of 31.5 cents from 34.5 cents previously.
See also: OUE REIT reports net property income of $53.2 mil for 1QFY2025 down 12.1% y-o-y
OUE REIT saw declining hospitality revenue of $23.3 million, down 13.3% y-o-y, and net property income (NPI) of $20.8 million, down 12.5%, in 1QFY2025. This was mainly led by underperformance at Hilton Orchard, partially offset by growing contributions from Crowne Plaza.
Revenue per available room (RevPAR) of S$249 was lower 19.1% y-o-y in March at Hilton Orchard, due mainly to declines in travellers from the US, Indonesia and China.
But CGSI's Lock and Li, along with Maybank analyst Krishna Guha, point to OUE REIT's steady commercial assets instead. The commercial segment reported 2.2% y-o-y growth in both its 1QFY2025 revenue and NPI to $42.7 million and $32.3 million respectively, on a same-store basis.
See also: OCBC trims OUE REIT target price by nearly 9% on hospitality weakness
OUE REIT, which divested Shanghai commercial asset Lippo Plaza Shanghai in December 2024, now has three office assets: OUE Bayfront, One Raffles Place and OUE Downtown Office.
In 1QFY2025, OUE REIT renewed 5.0% out of 18.6% expiring leases by gross rental income (GRI) in FY2025. Management expects single-digit positive reversion to hold up as expiring leases continue being marked to market.
The occupancy at retail asset Mandarin Gallery inched up to 99.5% during the quarter. Management also took note of growing spending on food and beverage in comparison to shrinking luxury spending by Chinese tourists, says CGSI.
OUE REIT says it continues to review opportunities in Singapore, along with offices in Sydney's central business district and hotels in Tokyo.
For now, Maybank's Guha maintains "hold" on OUE REIT due to its high gearing of 40.6%, up from 39.9% at the end of 2024, and a challenging hospitality outlook.
As at 2.11pm, units in OUE REIT are trading 0.5 cents lower, or 1.79% down, at 27.5 cents.
