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OUE REIT: 1H 2025. DPU Rose 5.4% · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
• 0:08
  Welcome to the deep dive. You know that feeling, right? You open a financial
• 0:11
  report and it's just fog. Charts, numbers, footnotes everywhere.
• 0:16
  It can feel pretty dense. Well, think of this as your shortcut through it.
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  Today, we're focusing on OUE Real Estate Investment Trust, OUBE REIT,
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  and how they did in the first half of 2025.
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  We've got their interim financials, the presentation slides,
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  the press release, our mission to really get into the numbers,
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  figure out the why and see what might be next for them.
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  And what's interesting right off the bat is revenue and net property income
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  look down, but the distributions per unit, the DPU, that actually went up.
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  So yeah, that's where it gets quite interesting.
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  It really does. And just quickly, OU, your REIT strategy is basically investing
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  in properties that generate income, mostly commercial.
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  So office and retail and hospitality too. They're heavily focused on Singapore.
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  Think One Raffles Place, OUE Downtown Office, Mandarin Gallery,
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  the Hilton Singapore Orchard, Crown Plaza at Changi Airport, and OUE Bayfront.
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  Prime stuff. Okay, let's tackle those headlines first.
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  Comparing 1H 2025 to 1H 2024, yeah, things look a bit lower.
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  Revenue dropped 10.6% to S131.1 million dollars.
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  And net property income, NPI, that dipped 10.1% to F105.3 million dollars.
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  So just looking at those raw figures, what's the immediate takeaway?
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  Well, the big immediate reason is pretty clear cut. It's the divestment of Lipopaw to Shanghai.
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  Remember, they sold that off right at the end of 2024, December 27th.
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  Since that was a foreign asset, it's just not in the numbers anymore.
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  So naturally, the overall group revenue in MPI reflects that absence.
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  It pulls the totals down.
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  Ah, OK. So that makes sense. The headline numbers are kind of skewed because
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  the whole property is gone from the comparison.
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  So to get the real picture, we need that like-for-like view,
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  right? What do those numbers tell us about how the rest of the portfolio,
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  the core Singapore assets, are actually doing?
• 1:59
  Exactly. And when you filter out Lipo Plaza, look at it like for like.
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  It's a much different story.
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  Revenue was only down slightly at 2.7 percent. And MPI JIP, just 2.0 percent year on year.
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  So that paints a picture of, you know, much more resilience.
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  Their core Singapore stuff is holding pretty steady. But here's the kicker. The DPU went up.
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  Increased by 5.4% to 0.98 Singapore cents for the half year.
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  And the core DPU, which is interesting, it strips out a capital distribution
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  they did last year, so it's more operational that jumped 11.4% year on year.
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  Well, that's a pretty big jump for uniholders, isn't it? How did that happen? It's quite a contrast.
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  And that positive DPU, despite the headline dips, really points to two main things OURE did well.
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  First, really effective capital management. And second, the underlying strength
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  of their commercial properties here in Singapore. Those two factors were key
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  in boosting the income available for distribution.
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  Okay, capital management. The report mentions finance costs went down significantly.
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  How significant are we talking and how did they pull that off?
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  We're talking a 17.3% drop in finance costs compared to last year. That's substantial.
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  And that directly helped the bottom line for distributions.
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  How? Well, it was a proactive approach. They took advantage of the falling Sarara,
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  the Singapore overnight rate average, and used hedging strategies effectively.
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  Looking at their debt structure, the average cost of debt stayed pretty stable, around 4.2% per year.
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  And importantly, they've hedged about 71.1% of their total debt.
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  That gives them flexibility, you know, with interest rates being uncertain,
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  plus their interest coverage ratio is solid at 2.2 times, which for you listening,
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  basically means their earnings cover their interest payments more than twice over.
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  That's comfortably above what their banks require, signaling good financial health.
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  Okay, so savvy financial footwork there. And you mentioned the Singapore commercial
• 3:46
  portfolio was resilient. Can we break that down a bit? What happened with offices and retail?
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  Sure. So the commercial segment that's office and retail combined actually saw
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  higher revenue like-for-like, up 3.6% to S86.1 million dollars.
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  And the NPI for commercial was up 5.1% like-for-like to S85.2 million dollars.
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  This strength came from getting higher average rents across the board in that
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  segment, and they also managed to keep operating expenses down.
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  If we zoom in on office, The Singapore office portfolio kept a really healthy
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  occupancy rate, 95.5% committed, and they managed a strong positive rental reversion
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  that means renewals or new leases signed at higher rates of 9.1% in the second quarter.
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  The average rent for square foot also nudged up slightly quarter-on-quarter to S$10.86.
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  Shows demand for good office space is still there. Then there's retail,
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  specifically Mandarin Gallery.
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  That place is practically full, 99.0% committed occupancy. And get this,
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  the rental reversion in Q2 was a huge 34.3% positive.
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  What's really amazing is its average rent, S$22.22 per square foot per month,
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  is now actually 1.2% higher than it was back in 2019 before the pandemic.
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  Wow, 1.2% above pre-pandemic levels for a mall. That's quite something,
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  especially given everything retail has gone through. Makes you wonder if that's sustainable.
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  Okay, but the hospitality side, the hotels, they were a bit softer,
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  you said. What drove that?
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  Yeah, hospitality revenue was down 12.9% and NPI down 11.7% compared to last year.
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  The main reason was that 1H 2024 was just a really strong period for them.
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  Remember, the China-Singapore visa-free travel kicked in then,
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  plus there were a lot of major events.
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  It set a high bar. So this year, 1H 2025 saw more, let's say, muted demand.
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  Plus, you have the broader economic headwinds and geopolitical tensions maybe
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  making people think twice about discretionary travel spending.
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  It really shows how external factors can swing things for hotels.
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  Looking at RevPR revenue per available room, it was $233 overall for hospitality.
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  Interestingly, the Crowne Plaza at Changji Airport actually saw its RevPR go up by 4.8% to S$239.
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  But the Hilton Singapore Orchard moderated down to S$230.
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  That moderation at the Hilton was partly normalization after last year's boost,
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  but also there's just more hotel room supply popping up in the Orchard Road
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  area now, increasing competition.
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  Always a balancing act. Were there any other sort of significant financial items
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  or adjustments in the report that caught your eye?
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  Yes, a couple of things. Their share of profit from the joint venture that owns
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  OUE Bayfront, OUE-LEAN's Bayfront LLP, that jumped by 41.0%.
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  That was mainly because the property itself performed better,
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  higher MPI and lower finance costs within that specific JV.
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  So good news there. However, on the other side, they booked a pretty significant
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  unrealized foreign exchange loss at $11.4 million this first half.
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  Compare that to basically nothing, just $2,000 in the same period last year.
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  This relates to foreign currency deposits they hold. It's an unrealized loss
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  for now, just on paper, but definitely something to watch given how currencies are moving globally.
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  Okay, so we've navigated through the past performance, cleared some of that fog.
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  Now looking forward, what's the vibe? What's the outlook for UYURIT,
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  especially with all the economic uncertainty still swirling around.
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  The official line, and I think it's realistic, is cautiously optimistic.
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  But with a very clear asterisk acknowledging those ongoing macroeconomic uncertainties
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  and geopolitical risks, they're not wearing rose-tinted glasses.
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  For the office sector specifically, CBRE is actually forecasting continued rent
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  growth for the best buildings, the core CBD grade A offices in Singapore.
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  They're projecting maybe 2-3% growth for 2025.
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  And there could even be potential for a bit more upside. What's driving that?
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  Well, there isn't much new office supply coming online. Plus,
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  there's this ongoing flight-to-quality companies wanting better spaces,
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  and increasingly, they want green buildings.
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  OU Reed's portfolio fits this well. It's 100% green certified and right there in the CBD.
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  So they seem pretty well-placed for that trend. Makes sense.
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  Positioned for what the market wants. What about retail? Mandarin Gallery doing
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  great, but what's the broader outlook?
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  Retail leasing generally seems healthy in Singapore.
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  F&B, fashion, services are doing okay, helped by tourism coming back.
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  But retailers themselves might be a bit cautious about expanding too fast,
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  you know, with rising costs and online competition still being major factors.
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  But the key thing is, there isn't expected to be a huge amount of new retail space opening up.
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  That limited supply should help
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  prime retail rents get back to pre-COVID levels, maybe by the end of 2025.
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  And IDR isn't just waiting for tenants, they're actively trying to create buzz,
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  like that Popmart collaboration at Mandarin Gallery. Trying to make the mall
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  an experience, not just shops. It seems essential these days.
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  Right, creating reasons to actually go there. And hospitality.
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  You mentioned moderating arrivals, but some supports. Yeah, visitor numbers
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  might be leveling off a bit from the initial post-pandemic surge.
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  But there's still a lot supporting the sector.
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  The IMEC pipeline looks strong.
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  Big events like the World Aquatics Championships, the F1 Grand Prix, always pull people in.
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  Plus, think about all the big concerts scheduled.
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  G-Dragon, Elton John, Blackpink, Jackie Chung.
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  Those bring in huge crowds, many from overseas.
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  And new attractions like the
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  expanded Oceanarium and Super Nintendo World coming soon should also help.
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  Crucially, like with offices, not a ton of new hotel supply is expected in the near term.
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  So OE REIT's focus here is on locking in corporate business,
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  enhancing what they offer, think of sustainable meeting packages,
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  more diverse food options like halal menus, themed family suites,
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  trying to capture specific guest segments.
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  So they seem to have clear reads on each sector. What about their overall game
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  plan then? What are the big strategic pillars for OE REIT going forward?
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  They've laid out three main ones. First is to maximize asset performance.
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  That means really focusing on keeping tenants happy and staying,
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  optimizing occupancy rates, getting the right mix of shops and retail,
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  and building strong ties with corporate clients for the hotels.
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  A big part of this is also improving the environmental side,
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  the green credentials of their buildings.
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  That's not just good for the planet. It makes the assets more valuable and attractive long-term.
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  Future-proofing, basically. Okay, maximizing what they have.
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  What's next? Second is to reinforce their capital structure.
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  Keep being careful with debt, manage refinancing smartly to keep costs down
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  and push out repayment dates, and use their good credit rating to their advantage.
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  It's about financial stability. Makes sense.
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  Prudent. And the third pillar? The third is pursue value creation opportunities.
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  This means keeping an eye out for ways to maybe reshuffle the portfolio if market
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  conditions are right, but also actively looking for new acquisitions.
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  And interestingly, not just in Singapore.
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  They're specifically mentioning looking at prime office buildings in Sydney,
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  Australia, and hotels in prime spots in Tokyo, Japan.
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  So potentially expanding their geographic footprint into other key gateway cities.
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  They're looking for offices, hotels, maybe mixed-use places with strong green
• 10:33
  credentials on long leases or freehold ownership, a measured expansion, it seems.
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  You really do see once you get past those initial downtrending numbers,
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  there's a lot going on underneath.
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  Active management of the assets, the finances. Absolutely.
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  It's quite fascinating, actually, how they're navigating things,
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  doubling down on the strength of their Singapore core, which is proving resilient,
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  while at the same time being strategic about managing debt and cautiously looking
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  for growth opportunities elsewhere.
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  It's a balancing act. Yeah, this deep dive really highlights that.
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  A complex report, sure, but clear stories emerge about resilience,
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  smart shifts, and definitely keeping an eye on the future cuts through that fog we talked about.
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  So thinking about all this, what really stands out to you?
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  Maybe the surprising strength of high-end retail like Mandarin Gallery,
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  or how crucial that capital management was for the DPU, something to chew on
• 11:20
  until our next deep dive.