OUE REIT FY 2024 Financial Analysis: Net Profit Growth & Investment Recommendation

Business Description

OUE Real Estate Investment Trust (OUE REIT) is a diversified Singapore-based REIT with a portfolio comprising high-quality office, hospitality, and retail assets. The company operates in Singapore, with its portfolio including prime properties such as OUE Bayfront, One Raffles Place, Mandarin Gallery, and the Hilton Singapore Orchard. The REIT manages a total portfolio of approximately S\$5.8 billion in assets under management, encompassing 1.8 million square feet of net lettable area and 1,655 upper upscale hotel rooms. OUE REIT holds an investment-grade credit rating (BBB-) from S&P Global Ratings.

Industry Position

OUE REIT is strategically positioned within Singapore’s real estate sector, targeting prime CBD office spaces, high-traffic retail locations, and hospitality assets. Its competitors include major Singapore REITs such as CapitaLand Integrated Commercial Trust and Mapletree Commercial Trust. Despite global macroeconomic uncertainties, OUE REIT benefits from its focus on Singapore, a global business hub with strong fundamentals. The company maintains a diversified tenant base spanning industries like hospitality, financial services, and retail, providing resilience against sector-specific downturns.

Revenue Streams and Competitive Advantage

OUE REIT derives its revenue primarily from three segments:

• Office: Contributing 49.1% of FY 2024 revenue, with a portfolio-wide occupancy rate of 94.6%.
• Hospitality: Accounting for 33.7% of revenue, driven by Hilton Singapore Orchard and Crowne Plaza Changi Airport. RevPAR grew by 9.2% YoY in FY 2024.
• Retail: Representing 17.2% of revenue, with Mandarin Gallery achieving a committed occupancy of 98.2%.

The REIT’s competitive advantage lies in its Singapore-centric portfolio, prime locations, and proactive asset management strategies, including sustainability initiatives and strategic tenant engagement.

Financial Statement Analysis

Income Statement

• Revenue: Increased by 3.7% YoY to S\$295.5 million in FY 2024, driven by resilient performance across office and hospitality segments.
• Net Property Income (NPI): Declined marginally by 0.4% YoY to S\$234.0 million due to upward revision of property taxes. Adjusted for this, NPI would have grown by 2.3% YoY.
• Earnings: Share of joint venture results surged by 80.5% YoY to S\$30.5 million, primarily due to fair value gains.
• Distribution Per Unit (DPU): Declined slightly by 1.4% YoY to 2.06 Singapore cents.

Balance Sheet

• Total Assets: Reduced to S\$5.94 billion as of 31 December 2024, reflecting the divestment of Lippo Plaza, Shanghai.
• Net Asset Value (NAV): Dropped by 3.3% YoY to S\$0.58 per unit.
• Aggregate Leverage: Stable at 39.9%, with a weighted average cost of debt of 4.7% p.a.

Dividend Details

For the period from 1 July 2024 to 31 December 2024, OUE REIT declared a DPU of 1.13 cents, comprising taxable income distribution (0.82 cents), tax-exempt income distribution (0.11 cents), and capital distribution (0.20 cents). The distribution payment is scheduled for 5 March 2025.

Key Findings

Strengths

• Resilient Portfolio: High-quality assets in prime locations with overall stable occupancy rates and positive rental reversions in office and retail segments.
• Hospitality Growth: RevPAR grew by 9.2% YoY, supported by tourism recovery and asset enhancements.
• Proactive Sustainability Initiatives: Issuance of green financing and ESG-focused asset enhancements.

Risks

• Higher Finance Costs: Finance expenses increased by 13.9% YoY, impacting distributable income.
• Macroeconomic Uncertainty: Weak occupier sentiment due to global economic challenges and hybrid work trends.
• Limited Dividend Growth: DPU declined slightly YoY, reflecting the impact of higher costs and reduced working capital retention.

Special Activities

OUE REIT completed the divestment of Lippo Plaza, Shanghai, unlocking S\$357.4 million. This strategic move enhances financial flexibility for future growth. Additionally, the REIT issued its first 3-year and 7-year investment-grade Green Notes and completed a S\$600 million sustainability-linked loan, reinforcing its commitment to ESG principles.

Investment Recommendations

For Current Investors

Hold the stock. The company demonstrates resilience through its diversified portfolio and proactive management, despite challenges such as rising finance costs. The stable DPU and strategic focus on sustainability and high-quality assets provide long-term growth potential.

For Potential Investors

Consider investing. With a strong focus on Singapore’s prime real estate and strategic initiatives to enhance portfolio value, OUE REIT offers an attractive investment for those seeking stable returns and exposure to Singapore’s growing real estate market.

Disclaimer

The recommendations are based solely on the financial data and strategic insights provided in the FY 2024 financial report. Investors are advised to consider their financial objectives and consult their financial advisors before making any investment decisions.

Report Date and Financial Period

The financial results pertain to the six-month and full-year period ending 31 December 2024, with the report released on 23 January 2025.

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