OCBC Investment Research Private Limited

25 April 2025

OUE REIT: A Tale of Two Cities – Commercial Strength Offsets Hospitality Weakness

Executive Summary

• OUE REIT’s 1Q25 results reveal a mixed performance, with revenue and net property income (NPI) declining by 3.9% and 4.1% year-on-year (YoY) on a like-for-like basis [[1]].
• The commercial segment demonstrated robust performance, which was offset by weaker occupancies and RevPAR in the hospitality sector [[1]].
• Gearing remains at a comfortable level, pending the repatriation of divestment proceeds from China. The fair value (FV) estimate has been revised to SGD0.315 [[1]].

Investment Thesis for OUE REIT

OUE REIT (OUEREIT) is a diversified Singapore real estate investment trust (S-REIT) focusing on income-generating properties across hospitality, retail, and office sectors. As of December 31, 2024, OUEREIT’s assets under management (AUM) stood at SGD5.8 billion, comprising six high-quality assets in prime Singapore locations [[1]]. The portfolio is expected to remain resilient despite global growth concerns. Since 2022, OUEREIT has optimized its capital structure and enhanced financial flexibility by increasing unencumbered assets and achieving an Investment Grade (IG) credit rating, which are positive steps toward restoring investor confidence and ensuring greater stability in performance [[1]].

Investment Summary

• The hospitality segment’s weakness was more pronounced than expected, with 1Q25 revenue and NPI falling 11.9% and 12.1% YoY to SGD66.0 million and SGD53.2 million, respectively, constituting 23.9% and 24.5% of initial full-year forecasts [[1]].
• A significant decline was due to the divestment of Lippo Plaza in Shanghai. On a like-for-like basis, revenue and NPI would have moderated 3.9% and 4.1% YoY, respectively [[1]].
• The hospitality segment saw revenue and NPI plunge 13.3% and 12.5% to SGD23.3 million and SGD20.8 million, respectively. Revenue per available room (RevPAR) was down 11.2% YoY at SGD248, dragged by Hilton Singapore Orchard (-19.1% YoY) due to lower occupancy from fewer visitor arrivals and weak Chinese demand [[2]].
• Mid-single-digit (MSD) rental reversions are still expected for the commercial segment this year, despite tariff uncertainty. The commercial segment remained resilient, with revenue and NPI growing 2.2% YoY to SGD42.7 million and SGD32.3 million, respectively, on a like-for-like basis [[2]].
• The office portfolio performed well, clocking rental reversions of +9.9% during the quarter, while committed occupancy improved 1.7 percentage points (ppt) quarter-on-quarter (QoQ) to 96.3%. The retail portfolio also saw committed occupancy improve, albeit by a smaller 1.3 ppt QoQ to 99.5%, with rental reversions of +4.9% [[2]].
• The Fair Value estimate is reduced to SGD0.315 due to weaker RevPAR performance from the hospitality segment. FY25 and FY26 DPU forecasts are lowered by 7.3% and 3.5%, respectively [[2]].
• The cost of equity input is raised from 7.8% to 8.3% to account for greater macroeconomic uncertainty. The BUY rating on the counter is maintained [[2]].

Key Financials

Security Information:

• Ticker: OUEI.SI
• Market Cap (SGD b): 1.5
• Daily turnover (SGD m): 0.6
• Free Float: 73%
• Shares Outstanding (m): 5,500
• Top Shareholder: Clifford Development Pte. Ltd. 26.8%

Financial Summary (SGD m):

Key Ratios:

Results Highlights (SGD m):

Capital Management

• OUEREIT’s aggregate leverage crept up 0.7 ppt from 39.9% as at 31 Dec 2024 to 40.6% as at 31 Mar 2025 [[2]].
• 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 [[2]].
• For every 25 bps decrease in SORA rates, management shared that distribution per unit (DPU) would increase by 0.03 Singapore cents [[2]].

ESG Updates

• OUEREIT views sustainability as both a societal imperative and commercial opportunity. In 2024, OUEREIT recalibrated its ESG targets with the support of its sponsor [[2]].
• Selected ESG Vision 2030 targets include reducing absolute Scope 1 and 2 greenhouse gas (GHG) emissions for commercial properties by 40% (compared to FY23), achieving 90% green financing, and reducing water intensity by 25% (compared to FY17) [[2]].
• In FY24, OUEREIT has reduced its absolute Scope 1 and 2 GHG emissions by 1.7%, and water intensity by 24.4%, while 69.4% of total debt are green financing [[2]].
• 64.2% of OUEREIT’s leases in FY24 were green leases, and 95.4% of its portfolio is green-certified [[2]].
• OUEREIT was awarded a four-star rating with an improved overall score of 82 points in the 2024 Global Real Estate Sustainability Benchmark (“GRESB”) assessment, up from a three-star rating and 77 points in 2023 [[3]].

Corporate Governance

• OUEREIT’s board comprises seven directors, of which four are independent. According to S&P Global, the REIT has previously rejected two pipeline assets from the sponsor, believing that they would not be economically beneficial [[3]].
• OUEREIT has room for improvement in terms of board gender diversity, given that there is only one female director at the time of writing [[3]].

Potential Catalysts

• Increased consumer confidence and tourism in Singapore [[3]]
• Further tightening of occupancies in commercial assets [[3]]
• DPU accretive acquisitions [[3]]

Investment Risks

• Weakening Chinese Yuan on its delayed repatriation of proceeds from divestment [[3]]
• Backfilling of OUE Downtown [[3]]
• Slower-than-expected rate cuts [[3]]

Valuation Analysis

Company Overview (as of 31 December 2024)

OUEREIT is a diversified S-REIT that invests in income-producing real estate primarily used for hospitality, retail, and office purposes in financial and business hubs, as well as in real estate-related assets. As of 31 Dec 2024, OUEREIT has a total AUM of SGD5.8b, managing six assets in Singapore [[4]].

Listed on the Main Board of the Singapore Exchange Securities Trading Limited since Jan 2014, OUEREIT is managed by OUE REIT Management Pte. Ltd., a wholly-owned subsidiary of its sponsor, OUE Ltd. The sponsor is a leading real estate and healthcare group that is strategically growing to capitalize on growth trends across Asia. Its real estate activities include the development, investment, and management of assets across the commercial, hospitality, retail, residential, and healthcare sectors [[4]].

FY24 Gross Revenue (by segment):

• Office (49.1%) [[4]]
• Hospitality (33.7%) [[4]]
• Retail (17.2%) [[4]]

FY24 Portfolio Asset Value (by geography):

• Singapore (100.0%) [[4]]

Net Property Income (SGD m):

• FY2020: 231.9 [[4]]
• FY2021: 204.2 [[4]]
• FY2022: 196.9 [[4]]
• FY2023: 235.0 [[4]]
• FY2024: 234.0 [[4]]

Distribution per unit (S cents):

• FY2020: 2.43 [[4]]
• FY2021: 2.60 [[4]]
• FY2022: 2.12 [[4]]
• FY2023: 2.09 [[4]]
• FY2024: 2.06 [[4]]

Company Financials

Income Statement (In Millions of SGD except Per Share):

Profitability Ratios:

Credit Ratios: