Broker: OCBC Investment Research
Date of Report: 24 July 2025

OUE REIT: Navigating Uncertainty with Resilience and Growth – A Comprehensive Analysis

Overview: OUE REIT’s Steady Performance Amid Market Volatility

OUE Real Estate Investment Trust (OUE REIT), a diversified S-REIT focused on high-quality assets in Singapore’s prime locations, continues to demonstrate resilience and stability despite global economic headwinds. The trust’s strategic capital structure optimization, enhanced financial flexibility, and commitment to sustainability have positioned it as a compelling choice for investors seeking stable returns in uncertain times.

1H25 Results: Outperforming Expectations with Robust Distribution Growth

• 1H25 Distribution Per Unit (DPU): 0.98 Singapore cents, a 5.4% year-on-year increase, in line with analyst expectations.
• Revenue and Net Property Income (NPI): Revenue fell 10.6% YoY to SGD 131.1 million and NPI dropped 10.1% YoY to SGD 105.3 million, mainly due to the divestment of Lippo Plaza in Shanghai.
• Like-for-like comparison (excluding divestment): Revenue and NPI moderated by just 2.7% and 2% YoY, respectively.
• Finance Costs: Down 17.3% YoY, supporting a healthy 11.3% YoY rise in distributable income to SGD 54.3 million.
• Core DPU Growth: If the capital distribution in 1H24 is excluded, core DPU would have risen 11.4% YoY.

Segment Analysis: Commercial Outperforms, Hospitality Faces Headwinds

Hospitality Segment

• Revenue: Down 12.9% YoY to SGD 45 million.
• NPI: Down 11.7% YoY to SGD 40.2 million.
• RevPAR: Down 13.4% YoY at SGD 233, affected by Hilton Singapore Orchard (-21%), a high base effect, increased competition from new supply, and cautious travel sentiment in 1H25.

Commercial Segment

• Revenue: Grew 3.6% YoY (like-for-like) to SGD 86.1 million.
• NPI: Up 5.1% YoY to SGD 65.2 million.
• Office Portfolio: Committed occupancy slipped 0.8 percentage points quarter-on-quarter to 95.5%.
• Rental Reversions: Surprised on the upside at 9.1% in 2Q25, though slightly down from 9.9% in 1Q25.
• Retail Portfolio (Mandarin Gallery): Occupancy dipped 0.5 ppt QoQ to 99.0%. Achieved strong rental reversions of 34.3% during the quarter (vs. 4.9% in 1Q25).
• Management Outlook: Expects mid-single-digit rental reversions for the commercial segment in 2025.

Capital Management: Strengthening Financial Flexibility

• Aggregate Leverage: Improved by 0.3 ppt to 40.3% as at 30 June 2025.
• Weighted Average Debt Cost: Stable at 4.2%, with 71.1% of debt on fixed rates.
• Interest Rate Sensitivity: A 25bps decline in interest rates would improve DPU by 0.03 Singapore cents.
• Forecast Revisions: FY25 and FY26 DPU forecasts raised by 6.2% and 1.1%, respectively.
• Fair Value Estimate: Increased to SGD 0.335 from SGD 0.315, reflecting a lower risk-free rate assumption (reduced by 50bps to 2.25%).

Results Highlights: Key Financials for 1H25 vs. 1H24

Financial Performance Summary and Forecasts

• Distribution Yield (%): FY24: 6.6%, FY25E: 6.7%, FY26E: 6.9%
• P/NAV (x): 0.53 across FY24–FY26E
• NPI Margin (%): FY24: 79.2%, FY25E: 77.7%, FY26E: 78.1%

Environmental, Social, and Governance (ESG) Initiatives

• Vision 2030 Targets: Reduce absolute Scope 1 and 2 GHG emissions for commercial properties by 40% (vs. FY23), achieve 90% green financing, and cut water intensity by 25% (vs. FY17).
• 2024 Achievements: Scope 1 and 2 GHG emissions down 1.7%; water intensity down 24.4%; 69.4% of debt classified as green financing.
• Green Leases and Certifications: 64.2% of leases are green; 95.4% of the portfolio is green-certified.
• GRESB Rating: Improved to four stars (82 points) from three stars (77 points) in 2023.
• Board Independence: Seven directors, four independent. The REIT previously rejected two sponsor pipeline assets for lacking economic benefit. Room for improvement in board gender diversity (only one female director).

Potential Catalysts and Investment Risks

• Upside Catalysts:
  • Rising consumer confidence and tourism in Singapore
  • Further tightening of commercial asset occupancies
  • DPU-accretive acquisitions
• Risks:
  • Weakening Chinese Yuan (CNY) could delay repatriation of divestment proceeds
  • Challenges in backfilling OUE Downtown
  • Slower-than-expected interest rate cuts

Peer Comparison: How OUE REIT Stacks Up

Company Profile: OUE REIT at a Glance

• Asset Under Management (AUM): SGD 5.8 billion as of 31 Dec 2024.
• Portfolio: Six high-quality Singapore-based assets across office (49.1% of FY24 gross revenue), hospitality (33.7%), and retail (17.2%).
• Ownership: 73% free float, Clifford Development Pte. Ltd. is the largest shareholder at 26.7%.
• Listing: Main Board of the Singapore Exchange since January 2014.
• Sponsor: OUE Ltd, a leading real estate and healthcare group in Asia.

Income Statement Highlights (FY2020–FY2024)

Profitability and Credit Ratios

• Return on Common Equity (FY24): -2.04%
• Return on Assets (FY24): -0.98%
• Operating Margin (FY24): 64.00%
• Total Debt/EBIT (FY24): 9.85x
• Net Debt/Equity (FY24): 0.59x
• EBIT to Interest Expense (FY24): 2.02x

Conclusion: OUE REIT Remains a Robust Investment Play

OUE REIT’s diversified portfolio, proactive capital management, and strong ESG credentials underscore its ability to weather macroeconomic uncertainties and deliver sustainable returns. With improving investor sentiment, resilient commercial fundamentals, and an attractive yield profile, OUE REIT remains well positioned for continued growth and stability in Singapore’s competitive real estate landscape.