Latest / Investor Exchange / How OUE REIT’s Strategic Pivot Delivered A 15.7% Core DPU Surge In FY2025

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How OUE REIT’s Strategic Pivot Delivered A 15.7% Core DPU Surge In FY2025 · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
• 0:08
  Welcome back to the Deep Dive. Today, we're looking at OU REITs results for the full year 2025.
• 0:14
  And I have to be honest, looking at the headline numbers this morning,
• 0:17
  something just doesn't quite sit right with me. Oh, yeah. What's bothering you?
• 0:20
  The numbers seem pretty clear cut.
• 0:22
  Well, clear cut is one word for it. I was thinking more like contradictory.
• 0:27
  I mean, Look at this. Revenue is down.
• 0:29
  Net property income, you know, the actual cash the buildings generate is also down. OK.
• 0:34
  But the payout to investors, the distribution per unit or DPU,
• 0:39
  it's up and not just a little.
• 0:41
  It jumped 10.6 percent in the second half. Right.
• 0:43
  Usually when a company makes less money, they pay out less money.
• 0:46
  So are they just like training the savings account to keep investors happy?
• 0:51
  It definitely looks suspicious at first glance. I'll give you that.
• 0:53
  But this isn't a case of robbing Peter to pay Paul.
• 0:56
  It's actually a case of some very specific and I'd say very smart financial engineering.
• 1:01
  OK, so walk me through it, because to understand that payout bump,
• 1:04
  you're saying I have to ignore the revenue drop.
• 1:07
  But why is revenue down 4.2% in the first place? You can't just ignore that.
• 1:12
  You can if it was intentional.
• 1:14
  Do you remember Lippo Plaza, Shanghai? Right, the property in China.
• 1:18
  They sold that off. Exactly. They divested it late in 2024.
• 1:22
  So when you compare the second half of 2025 to the same period the year before,
• 1:27
  you're obviously missing an entire building's worth of rental income.
• 1:31
  Ah, okay. So that explains why the top line shrank.
• 1:34
  It's the whole story there. They essentially decided to reduce their exposure
• 1:38
  to the Shanghai office market, which, as you know, has been really struggling with vacancies.
• 1:42
  Makes sense. So the pie is smaller because they removed a slice that was maybe going a bit bad.
• 1:47
  But that still doesn't explain how the remaining slices got bigger for investors.
• 1:51
  Right. How do you get a double digit payout growth from a smaller portfolio?
• 1:55
  Two big reasons. First, you have to look at the like for like performance.
• 1:59
  So if you strip out that China sale and only look at the properties they still
• 2:03
  own, which are mostly in Singapore, their net property income actually grew.
• 2:08
  Grew by how much? By 5.2 percent. So the core business is healthy.
• 2:12
  OK, but 5 percent organic growth doesn't equal a 10.6 percent payout jump.
• 2:17
  There's still a gap there. And that gap.
• 2:20
  That was filled by their debt strategy. This is a really interesting part.
• 2:23
  While everyone else was complaining about high interest rates,
• 2:27
  OU REIT managed to slash their finance costs by a massive 18%. 18% in this economy.
• 2:34
  How on earth do you lower your mortgage bill when global rates are still hovering
• 2:39
  high? You use the green label to your advantage.
• 2:41
  They issued $150 million Singapore dollars in investment-grade green notes.
• 2:47
  I see that term green notes a lot. Honestly, it usually just sounds like marketing fluff to me.
• 2:51
  In many cases it is, but here it translated into hard cash.
• 2:55
  See, there's this massive pool of global capital out there that is legally mandated
• 3:00
  to buy sustainable or green debt.
• 3:03
  Right. So there's more demand than supply. Precisely.
• 3:06
  OUE tapped right into that supply-demand imbalance.
• 3:09
  And they locked in a fixed coupon of just 2.75%. 2.75.
• 3:16
  That's practically free money compared to the 4 or 5 percent that standard commercial
• 3:21
  loans are going for. Exactly.
• 3:23
  That arbitrage brought their weighted average cost of debt all the way down to 3.9 percent.
• 3:29
  And that interest saving, it flows directly through the bottom line straight into the DPU.
• 3:34
  So they essentially refinance their way to a higher dividend.
• 3:36
  That's clever. It is. Okay, so the financial engineering saved the balance sheet.
• 3:40
  But you can't just cut costs forever.
• 3:42
  Eventually, you need to actually rent space to people.
• 3:45
  How is the actual business of being a landlord doing? It's surprisingly robust,
• 3:50
  especially in the commercial segment.
• 3:51
  Their Singapore office portfolio has a committed occupancy of 95.7%. It's effectively full.
• 3:58
  It is. And because occupancy is so tight, they have leverage on rents,
• 4:02
  passing rents are rising.
• 4:03
  Now, hospitality was a little bit trickier. I saw that in the notes.
• 4:07
  Something about a calendar clash.
• 4:09
  Yeah. So normally having the Formula One race and the Golden Week holiday is a bonanza for hotels.
• 4:16
  But this year, they overlapped, which kind of creates a scheduling headache.
• 4:19
  You lose that extended period of high demand. But how did they do?
• 4:22
  They still did well. NPI for hospitality still grew 4.5%. And how did they manage
• 4:28
  that with the calendar working against them?
• 4:31
  Concerts. Simple as that. A stronger calendar of high-profile concerts brought
• 4:36
  in a whole different wave of tourists to fill that gap.
• 4:39
  It kept their revenue per available room or rev pay are stable at $277.
• 4:45
  So looking ahead to 2026, management is calling the Singapore market landlord favorable.
• 4:51
  Is that just standard corporate optimism? I think it's based on solid fundamentals, mainly supply.
• 4:57
  There is almost no new office space being built. Shaw Towers is pretty much
• 5:01
  the only major completion coming up. And when supply is that scarce?
• 5:04
  Rents go up. They're projecting about 5% rental growth. But the really big news isn't Singapore.
• 5:10
  It's where they're looking to go next. You mean the pivot to Sydney?
• 5:13
  Yes. They've explicitly said they're actively looking for opportunities in the Sydney CBD.
• 5:19
  This is what I really wanted to ask you about. They just sold out of China because
• 5:22
  the market turned on them. Now they want to buy into Australia.
• 5:26
  Is Sydney actually a favorable risk reward right now, or are they just trading
• 5:30
  one volatile overseas market for another?
• 5:33
  That is the multi-million dollar question, isn't it? Sydney has definitely seen
• 5:37
  a price correction, so assets are cheaper than they were a few years ago.
• 5:41
  Management probably thinks they're buying near the bottom. But it's not a sure thing. No.
• 5:45
  Unlike Singapore, which is seen as a safe haven, Sydney has its own vacancy
• 5:50
  issues and economic sensitivities to worry about.
• 5:53
  It's a calculated risk. So, to wrap this all up, we have a cleaner,
• 5:59
  more Singapore-centric portfolio.
• 6:01
  They've shed weight in China, used their green status to get cheap dead,
• 6:05
  and now they're rolling the dice on a recovery in Australia.
• 6:08
  It's definitely an aggressive turnaround strategy. It's leaner,
• 6:11
  cleaner, but it's absolutely not without risk.
• 6:13
  A fascinating case study on how to engineer growth when your top line is falling.
• 6:17
  That's all the time we have for this deep dive. And before we go,
• 6:21
  the mandatory closing statement.
• 6:22
  This content is intended to serve strictly and only as an informational,
• 6:27
  independent, objective summary of recent events, and should in no way be interpreted,
• 6:32
  construed, or relied upon by any party as inside information or financial advice. Thank you.