Company update: OUE REIT (OUEREIT SP/TS0U.SI)
Company Update: Updated 21 August 2024
Maximising Singapore assets performance
1H24 performance exceeded expectations. For 1H24, OUE REIT delivered revenue of S$146.7mn, representing a 5.7% YoY increase from S$138.8mn in 1H23. Net property income rose by 1.6% YoY to S$117.1mn, up from S$115.3mn in the previous year. These gains were primarily driven by the recovery of Singapore’s tourism sector, benefiting the hospitality segment. However, due to the change in base management fees to be fully paid in cash, distribution per unit (DPU) declined by 11.4% YoY to 0.93 Scents, from 1.05 Scents in 1H23.
Growth in rental reversion.
Despite a market slowdown, OUE REIT’s management maintained a high committed occupancy rate of 95.2% for its Singapore office portfolio, with an average passing rent of S$10.57 per sq ft, marking a 0.7% QoQ increase. The REIT achieved rental reversion growth of 11.7%, supported by proactive lease renewal strategies that kept the weighted average lease expiry (WALE) at a comfortable 2.2 years by net lettable area (NLA) and 2.1 years by gross rental income (GRI). Enhancements to the tenant mix have further bolstered portfolio performance.
Falling interest rates
With the market pricing in a 100% chance for a Fed rate cut in September, interest rates have begun to decline, lowering the overall cost of borrowing for OUE.
Valuation & Action
We maintain an OUTPERFORM rating with an unchanged target price of S$0.309, based on our Dividend Discount Model (DDM) valuation, which assumes a terminal growth rate of 2.0% and a cost of equity of 9.7%. We anticipate that the hospitality demand and rental reversion will drive further growth.
Risks
Economic fluctuations, regulatory changes, and prolonged high interest rates.
