Broker: CGS International
Date of Report: July 25, 2025

OUE REIT 2025: Unlocking Value through Interest Savings and Office Strength

Executive Summary: OUE REIT’s Strategic Moves in 2025

OUE REIT has reported a resilient performance for the first half of 2025, overcoming sector-specific headwinds with strong office segment results and confirmed finance cost savings. The REIT maintains an attractive 6.4% dividend yield forecast for FY25, with a target price of S\$0.33. While hospitality faces challenges, the commercial portfolio’s robust rental reversion and occupancy trends underpin the stability and growth outlook.

1H25 Financial Performance: Navigating Mixed Sector Dynamics

• 1H25 DPU: 0.98 Scts (49% of FY25F forecast, in line with expectations)
• Gross revenue/NPI fell 10.6%/10.1% year-over-year, primarily due to the income vacuum from Lippo Plaza Shanghai
• Same-store basis: Revenue/NPI declined by 2.7%/2.0% year-over-year, mainly from weaker Hilton Singapore Orchard (HOS), partially offset by commercial segment strength
• Gearing: 40.3%, cost of debt at 4.2%, both stable quarter-over-quarter
• Finance cost savings realized: S\$9.4m year-over-year, with further savings expected in FY26 from early refinancing of OUE Allianz Bayfront borrowing (S\$311m)

Office Segment: Outperforming with Strong Rental Reversion and High Occupancy

• Commercial segment same-store revenue/NPI up 3.6%/5.1% year-over-year to S\$86.1m/S\$65.2m in 1H25
• Rental reversion: Impressive +9.1% in 2Q25, beating mid-single-digit guidance
• Occupancy: Remained high at 95.5% (-0.8 percentage points)
• Leasing activity: Driven by expansion from banking, finance, insurance tenants, and relocations from nearby offices
• Lease expiries: 36.8% of leases expiring in FY26F, including top tenants Deloitte, Bank of America, and Allen & Overy; negotiations underway
• Mandarin Gallery: Maintained 99.0% occupancy (-0.5 percentage points); notable 34.3% reversion for one low-rent tenant
• Active management: Driving footfall and diversifying with new retail concepts, such as a Pop Mart pop-up

Hospitality Segment: Facing Headwinds but Poised for a Turnaround

• Hospitality revenue: S\$45.0m in 1H25, down 12.9% year-over-year
• NPI: S\$40.2m, down 11.7% year-over-year
• Hilton Singapore Orchard (HOS) RevPAR: S\$230, down 21% year-over-year; attributed to increased Orchard Road supply, fewer large events, weaker source markets, and hotel management underperformance
• Management action: New hotel executives to join HOS in 4Q25F to revitalize sales
• Crowne Plaza: Positive RevPAR growth of 4.8% to S\$239, despite forex pressures
• Event calendar caution: Formula One rescheduled to October 2025; lower event activity expected in Sep-Oct

Revised Outlook and Dividend Yield: Forecasts and Valuation

• FY25F RevPAR estimate trimmed by 6%
• FY25-27F gross revenue forecasts lowered by 1.1-1.2%
• Cost of debt assumptions reduced, boosting FY26-27F DPU estimates by ~3%
• FY25F DPU marginally trimmed by 1.2% due to weaker HOS
• Key catalysts: Outperformance from hospitality segment
• Risks: Unexpected lease non-renewals, sudden shifts in travel demand

Peer Comparison: OUE REIT in the S-REIT Universe

OUE REIT’s dividend yield and asset leverage remain competitive across the hospitality, industrial, office, retail, and overseas-centric S-REIT sectors.

ESG Performance: Progress and Ambitions

• LSEG ESG Combined Score: C (FY23)
• Environmental: B-, Social: C+, Governance: D, ESG controversies: A+
• Green targets: 40% reduction in GHG emissions by FY30 (base year FY17); 25% cut in water intensity and non-hazardous waste for commercial assets; 25% reduction in energy and water intensity per occupied hotel room by FY30
• Board-level diversity: 25% female representation on Board, 40% in senior management targeted
• Green financing: Aim for 90% of financing obligations to be green by FY30 (69.5% sustainability-linked loans as of FY23)
• GRESB Real Estate Benchmark: 3-star rating in 2023
• ESG strengths: Resource use (A-), workforce (A-), environmental innovation (A+), product responsibility (A+), emissions (B+)
• Areas for improvement: Community (C+), CSR strategies (C-), Governance (D)
• 95.7% of the portfolio green-certified, 50.3% of leases are green leases (end-2023)
• Energy intensity reduced by 20.9% (commercial, since FY17), but up 17.8% for hospitality
• Water intensity lowered by 26.1% (commercial) and 16.9% (hospitality)

Financial Ratios and Key Metrics: Tracking Performance

• Net Property Income Margin: 80.3% (FY25F), improving to 80.5% by FY27F
• DPS Growth: -3.4% (FY25F), rebounding to 10.4% in FY26F and 3.8% in FY27F
• Gross Interest Cover: 2.10 (FY25F), rising to 2.28 (FY27F)
• Current Ratio: 1.79 (FY25F), improving to 1.93 (FY27F)
• Return on Average Assets: 1.42% (FY25F), increasing to 1.67% (FY27F)
• Net Dividend Payout Ratio: 117% (FY25F), declining to 109% (FY27F)

OUE REIT: Investment Highlights and Risks

• Attractive 6.4% forward dividend yield for FY25F with upside to 7.5% by FY27F
• Strong office segment underpins stability amidst hospitality volatility
• Confirmed interest cost savings and proactive refinancing strategies
• ESG leadership in resource use and environmental innovation supports long-term value
• Risks: Lease non-renewals, weak travel demand, delays in hospitality turnaround

Broker Ratings and Analyst Coverage

• Consensus rating: 4 Buys, 1 Hold, 0 Sells
• Current price: S\$0.31; Target price: S\$0.33; Upside: 6.5%
• Analysts: LOCK Mun Yee, LI Jialin

Conclusion: OUE REIT’s Path Forward in 2025

OUE REIT stands out among Singapore REITs for its prudent cost management, strong office fundamentals, and forward-looking ESG ambitions. With ongoing efforts to revitalize its hospitality arm and a robust commercial portfolio, OUE REIT is positioned to deliver attractive yields and sustainable value for investors in the coming years.