‘Off to a good start’: Analysts expect OUE Reit to unlock further value from assets after strong Q1 showing

[SINGAPORE] Analysts believe that OUE Reit could unlock further value from its portfolio, including its recent acquisition of Salesforce Tower, after delivering “a good start” to the financial year in its latest first-quarter results. 

OUE Reit, on Apr 21, posted an 8.4 per cent rise in net property income (NPI) to S$57.6 million for Q1 ended Mar 31 from S$53.2 million a year prior. Revenue increased 6.7 per cent year on year (yoy) to S$70.5 million from S$66 million.

Analysts maintained their buy on the real estate investment trust (Reit) on the back of its strong performance in its hospitality and commercial segments, with at least two brokers – OCBC and CGSI – raising their estimates for the company. 

OCBC increased its fair value estimate to S$0.41 from S$0.40 in a note on Apr 22. CGSI raised the target price to S$0.44 from S$0.41 in a note on Thursday (Apr 23). DBS, however, maintained its target price at S$0.45 on Wednesday. 

The counter closed S$0.005 or 1.4 per cent lower at S$0.365 on Friday (Apr 24). 

Off to a good start

DBS analyst Tabitha Foo said that OUE’s financial performance was “off to a good start” and tracked broadly in line with DBS’ full-year estimates, which exclude the Salesforce Tower acquisition.

The Reit is also a key beneficiary of a declining interest rate environment in Singapore within the mid-cap Reit space, with steady quarter-on-quarter interest savings likely to continue. 

Financial costs fell around 18 per cent to S$17.2 million for the quarter due to the cost of debt declining to 3.7 per cent, noted Foo. 

“As the Reit progresses into its third phase of growth with a focus on capital recycling, a potential divestment of One Raffles Place or Crowne Plaza Changi Airport could serve as a meaningful catalyst for value unlocking,” she said. 

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Returns from acquisitions

The group’s joint venture (JV) and associate income climbed 57.2 per cent yoy, driven by “significant interest cost savings” from office tower OUE Bayfront and the acquisition of Salesforce Tower in the central business district of Sydney, Foo added. 

OUE Bayfront secured approval to convert level 17 into more than 22,600 square feet of office space that is set to be completed by the first half of 2027. Foo notes the project could generate return on investment exceeding 11 per cent. 

CGSI analyst Li Jia Lin expects further uplift in JV and associate income in Q2 as OUE Reit’s 19.9 per cent stake in Salesforce Tower “begins contributing meaningfully”.

OUE Reit’s stake in commercial skyscraper Salesforce Tower grants the Reit right of first refusal over the remaining stakes, allowing accumulation of more stakes in the future, said Li.

OCBC analyst Ada Lim said that the skyscraper’s committed occupancy stood at 99.2 per cent as at Mar 31, exceeding the market average of 90.6 per cent for premium grade assets. 

She noted that rental growth for the Sydney CBD market is expected to remain supported by investor “flight-to-quality trends and limited new supply beyond 2027”. The Reit is also exploring the divestment of One Raffles Place, ahead of potentially muted reversions in 2028 to 2029 as new supply comes to the market, Lim added. 

With many interested parties, a potential sale in the second half of 2026 constitutes a “significant value-unlocking exercise” if it materialises, said Foo.

However, Lim noted that retail and hospitality segment growth may be affected by travel disruptions and hiked jet fuel prices amid the ongoing Middle East crisis. 

Despite this, she expects margins to remain stable, helped by long-term utilities contracts in Singapore.