In an April 25 note, Lim maintains "buy" on OUE REIT with a lower target price of 31.5 cents from 34.5 cents previously.
OUE REIT's revenue per available room (RevPAR) was down 11.2% y-o-y at $248, dragged by Hilton Singapore Orchard (-19.1% y-o-y), which saw lower occupancy as visitor arrivals slide in the absence of Taylor Swift's concerts and weak Chinese demand.
Commercial segment still resilient
OUE REIT's portfolio comprises six office, hospitality and retail assets located in Singapore. Its three office assets - OUE Bayfront, One Raffles Place and OUE Downtown Office - are situated within the central business district, with a total net lettable area (NLA) of approximately 1.6 million sq ft.
See also: OUE REIT to divest Lippo Plaza Shanghai for $357.4 mil; all remaining assets in Singapore
OUE REIT's two hotels, Hilton Singapore Orchard and Crowne Plaza Changi Airport, offer a total of 1,655 upper upscale hotel rooms. Complementing Hilton Singapore Orchard is Mandarin Gallery, a 126,294 sq ft retail mall.
Lim expects mid-single-digit rental reversions for OUE REIT's commercial segment this year, notwithstanding tariff uncertainty. Performance from the commercial segment remained resilient, with revenue and NPI growing 2.2% y-o-y to $42.7 million and $32.3 million respectively on a like-for-like basis.
The office portfolio performed well, clocking rental reversions of 9.9% during the quarter, while committed occupancy improved 1.7 percentage points (ppt) q-o-q to 96.3%.
See also: OUE REIT reports net property income of $53.2 mil for 1QFY2025 down 12.1% y-o-y
OUE REIT's retail portfolio also saw committed occupancy improve, albeit by a smaller 1.3 ppt q-o-q to 99.5%, with rental reversions of +4.9%.
Capital management updates
OUE REIT's aggregate leverage crept up 0.7 ppt from 39.9% as at end-2024 to 40.6% as at end-March. Average cost of debt improved 50 bps from 4.7% to 4.2% over the same period, with 74.7% of debt on fixed rates.
For every 25 bps decrease in Singapore Overnight Rate Average (SORA) rates, management shared that distribution per unit (DPU) would increase by 0.03 cents.
"We review our assumptions and factor in weaker RevPAR performance from the hospitality segment. Our FY2025 and FY2026 DPU forecasts are lowered by 7.3% and 3.5%, respectively," writes Lim. "We also raise our cost of equity input from 7.8% to 8.3% to account for greater macroeconomic uncertainty, though we continue to think that OUE REIT's portfolio should stay relatively resilient given its 100% exposure to high quality assets in Singapore."
Units in OUE REIT closed flat at 27.5 cents on April 25.
