Date: 24 October 2024
Broker Name: Lim & Tan Securities Pte Ltd
3Q 2024 Financial Performance
OUE REIT reported revenue of S$74.8 million for the financial period from 1 July 2024 to 30 September 2024 (3Q 2024), representing a slight decline of 1.3% year-on-year (YoY). Net property income (NPI) for the period was S$60.3 million, which was 3.7% lower YoY. The decrease in NPI was primarily due to an upward revision of prior years’ property tax for Hilton Singapore Orchard and Crowne Plaza Changi Airport. Without this tax adjustment, NPI would have declined by only 1.2% YoY.
Balanced Portfolio Strategy
The CEO of OUE REIT’s manager, Mr. Han Khim Siew, highlighted that the REIT’s strategy of maintaining a balanced portfolio has continued to deliver resilient performance despite a challenging leasing environment. The commercial segment in Singapore secured high occupancy and strong rental reversion, even though there was some softening in the leasing market.
Commercial Segment Performance
The commercial segment, comprising office and retail properties, recorded revenue of S$47.0 million in 3Q 2024, a slight decrease of 1.1% YoY due to reduced contribution from Lippo Plaza. However, NPI for the segment increased by 0.3% YoY to S$35.7 million, supported by effective cost management.
As of 30 September 2024, the committed occupancy rate for Singapore offices was 95.4%, an increase of 0.2 percentage points quarter-on-quarter (QoQ). OUE REIT achieved positive rental reversion of 10.8% for office lease renewals, with the average passing rent rising by 0.4% QoQ to S$10.61 per square foot (psf) per month in September 2024.
Stable Retail Leasing Sentiment
Retail leasing remained stable in Singapore during 3Q 2024. Mandarin Gallery, a key retail property within OUE REIT’s portfolio, achieved a positive rental reversion of 16.0%, reflecting ongoing consumer demand. Committed occupancy for retail properties was 95.3%, and the average passing rent rose by 3.5% QoQ to S$21.84 psf per month.
Hospitality Segment Insights
The hospitality segment reported revenue of S$27.8 million and NPI of S$24.6 million for 3Q 2024, with decreases of 1.7% and 8.9% YoY, respectively. The declines were mainly due to a normalization of tourist spending on accommodation compared to the same period in FY 2023. Excluding the upward revision of property tax for FY 2022 and FY 2023, NPI for the hospitality segment would have decreased by 3.2% YoY in 3Q 2024.
The segment’s revenue per available room (RevPAR) rose by 0.3% YoY to S$296. Notably, Crowne Plaza Changi Airport saw its RevPAR increase by 30.3% YoY to S$259, attributed to the successful asset enhancement completed in December 2023, which had previously affected performance. Meanwhile, Hilton Singapore Orchard’s RevPAR was recorded at S$315.
Strong Debt Management and Financial Position
As of 30 September 2024, OUE REIT had only 6.7% of its total debt due in 2025, with a weighted average debt maturity of 2.9 years. The aggregate leverage remained stable at 39.3%, with 70.5% of total debt hedged. This prudent debt management strategy ensures financial flexibility, particularly in the current interest rate environment. The interest coverage ratio (ICR) and adjusted ICR, following MAS guidelines, were stable at 2.2x.
Strategic Outlook and Recommendation
Despite global economic uncertainties affecting leasing sentiment, OUE REIT is well-positioned to maintain stable performance, particularly with its green-certified, core Grade A office assets in Singapore’s prime CBD area. The REIT is expected to benefit from a favorable interest rate environment and delayed office completions, which should support office demand.
OUE REIT’s market capitalization stands at S$1.6 billion, trading at 0.51x price-to-book (P/B) ratio and offering an annualized dividend yield of 6.2%. The consensus target price of S$0.36 indicates a 20% upside potential from the current share price. Given the stable performance of its commercial properties and growth in the hospitality segment, the report recommends an “Accumulate” strategy for OUE REIT.
