Company Overview
OUE REIT is a Singapore-listed real estate investment trust that owns and manages a portfolio of prime commercial properties, primarily focused on Grade A office buildings in Singapore’s Central Business District and other key markets including Australia. The REIT has established itself as a quality operator of premium commercial assets with strong tenant relationships and strategic positioning in prime locations.
Strong Financial Performance Drives Outperformance
OUE REIT delivered impressive results with 2H25/FY25 distribution per unit (DPU) of 1.25/2.23 Singapore cents, representing growth of 10.6%/8.3% year-on-year and significantly beating expectations at 62.5%/111.5% of FY25 forecasts. This outperformance was primarily driven by a substantial 21% year-on-year decline in FY25 finance costs, enhanced operational performance in the commercial segment, and a remarkable 49.3% year-on-year increase in joint venture contributions.
Commercial Segment Demonstrates Resilience
The commercial segment showed robust fundamentals with like-for-like revenue and net property income growing 3.9% and 5.4% year-on-year to S$173 million and S$130 million respectively in FY25, excluding Lippo Plaza Shanghai. The office portfolio maintained exceptional occupancy at 95.4% with positive rental reversions of 9.1%, clearly indicating a flight-to-quality trend favouring prime CBD assets. This strong performance extended to OUE REIT’s joint venture operations, with OUE Bayfront earnings surging 49.3% year-on-year to S$14.5 million in FY25.
Investment Recommendation and Strategic Outlook
Phillip Securities Research maintains a BUY recommendation with an upgraded target price of S$0.45, increased from the previous S$0.40, reflecting improved risk profile following the Lippo Plaza Shanghai divestment and warranting a lower cost of equity of 6.3%. At FY26 expected dividend yield of 6.2% and price-to-NAV of 0.64x, the valuation remains compelling. As OUE REIT embarks on its Phase 3 Value Creation Journey, management is expected to focus on strategic asset recycling to redeploy capital from mature assets into similar risk-adjusted properties with higher yields.
Frequently Asked Questions
Q: What drove OUE REIT’s strong FY25 performance?
A: The outperformance was driven by a 21% year-on-year decline in finance costs, stronger operational performance in the commercial segment, and a 49.3% year-on-year increase in joint venture contributions.
Q: How did the commercial segment perform in FY25?
A: The commercial segment achieved like-for-like revenue and net property income growth of 3.9% and 5.4% year-on-year to S$173 million and S$130 million respectively, with office portfolio occupancy at 95.4% and positive rental reversions of 9.1%.
Q: What is Phillip Securities Research’s recommendation and target price?
A: Phillip Securities Research maintains a BUY recommendation with a target price of S$0.45, upgraded from the previous S$0.40, based on dividend discount model valuation.
Q: What factors support the upgraded target price?
A: The upgrade reflects the lower risk profile of the current portfolio following the Lippo Plaza Shanghai divestment, warranting a reduced cost of equity from 6.8% to 6.3%.
Q: How significant was the cost of debt reduction?
A: The cost of debt fell by 80 basis points year-on-year to 3.9% from 4.7%, cutting FY25 finance costs by 17.6% to S$87.8 million, with OUE REIT benefiting from higher fixed rate debt exposure during SORA decline.
Q: What is OUE REIT’s strategic focus going forward?
A: As part of Phase 3 Value Creation Journey, OUE REIT will focus on asset recycling to redeploy capital from mature assets into similar risk-adjusted assets with higher yields.
Q: What opportunity does the Salesforce Tower acquisition present?
A: The partial 20% stake in Sydney Salesforce Tower offers exposure to a prime Circular Quay location with 95%+ Grade A occupancy, limited office supply in 2026, and potential reversion upside from below-market rents with strong tenant stability.
Q: What are the key rental reversion opportunities?
A: Singapore office portfolio passing rent of S$10.97 per square foot sits 11% below S$12.30 market rate, with significant reversion potential from major leases like Deloitte’s 150,000 square feet expiring in 2026.
This article has been auto-generated using PhillipGPT. It is based on a report by a Phillip Securities Research analyst.
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