With the REIT earnings season behind us, it’s time to take stock of how the sector has performed.
Of the 22 Singapore REITs that reported distribution figures, only four achieved a higher distribution per unit (DPU) with 17 reporting a year-on-year decline.
OUE REIT (SGX: TS0U) managed to report an unchanged DPU for the second half of 2023 (2H 2023).
The commercial and hospitality REIT announced a rebranding exercise late last month to change its name from “OUE Commercial REIT” to “OUE REIT” to better reflect its current focus on growth opportunities in the hospitality, office, and retail sectors.
Here are five highlights from the REIT’s latest 2023 earnings.
1. A resilient financial performance
For 2H 2023, revenue rose 16.4% year on year to S$146.3 million, driven by a strong operating performance in OUE REIT’s Singapore portfolio along with a higher room inventory for Hilton Singapore Orchard after it completed its asset enhancement initiative (AEI).
Net property income (NPI) improved by 15.9% year on year to S$119.7 million.
Finance costs jumped 24.4% year on year to S$58.7 million while the REIT manager retained a larger sum of S$5 million for working capital.
Despite the above, distribution per unit (DPU) stayed constant year-on-year at S$0.0104.
For 2023, revenue and NPI increased by 18% and 19.3% year-on-year, respectively, to S$285.1 million and S$235 million.
DPU for last year dipped by 1.4% year on year to S$0.209.
2. Prudent debt management
OUE REIT also maintained a stable debt profile with no refinancing requirement until 2025.
The manager is proactively exploring early refinancing options to smoothen the debt maturity profile over a longer period.
Aggregate leverage declined from 39.4% as of 30 September 2023 to 38.2% as of 31 December 2023.
The REIT’s weighted average cost of debt stood at 4.3% with close to two-thirds of its loans pegged to fixed rates.
If interest rates rise by 0.25 percentage points, the REIT will experience a DPU decline of S$0.0004, or around 1.9% of 2023’s DPU.
3. Higher valuations with strong operating metrics
OUE REIT saw its property valuation inch up 1.7% year on year to S$5.61 billion, underpinned by higher valuations for its hospitality segment along with stable valuation for its Singapore office properties.
The REIT’s portfolio has 92.5% of its assets in Singapore with two properties, One Raffles Place and Hilton Singapore Orchard, making up close to half of the portfolio’s value.
These two properties also contributed 48.4% of the REIT’s total gross revenue for 2023.
OUE REIT has a diversified tenant mix with the largest tenant, OUE Limited (SGX: LJ3), contributing 17.2% of gross rental income (GRI).
The top 10 tenants made up 43.3% of GRI while the portfolio’s weighted average lease expiry (WALE) based on GRI came in at 2.4 years.
4. A mixed performance for the Commercial segment
OUE REIT’s commercial portfolio saw revenue and NPI increase by 8.5% and 7.4% year-on-year, respectively, for 2023.
Its Singapore office portfolio enjoyed a high committed occupancy of 95.2% along with a positive rental reversion of 12% for the year.
However, its Shanghai Lippo Plaza reported an office committed occupancy of 83.3%, down 5.4 percentage points quarter-on-quarter.
Retail committed occupancy for the asset also dipped by 3.3 percentage points to 94.5% over the same period.
Mandarin Gallery, on the other hand, performed well.
Committed occupancy stood high at 96.6% with a strong positive rental reversion of 13.7% for 2023.
5. A rebound for the Hospitality segment
OUE REIT’s hospitality segment handed in a sparkling performance because of the full opening of Hilton Singapore Orchard along with the tourism recovery.
Revenue and NPI for the division jumped by 42.2% and 44.4%, respectively, to S$97.3 million and S$91.6 million.
Revenue per available room (RevPAR) for the hospitality segment improved by 4.2% year on year to S$250.
Get Smart: Capping off two AEIs
2023 saw two AEIs completed by OUE REIT.
The first was the rebranding of Hilton Singapore Orchard with an inventory of 1,080 fully refurbished rooms and suites.
The second was a S$22 million AEI for Crowne Plaza Changi Airport that equipped the hotel with a full inventory of 575 rooms since January 2024.
Armed with a resilient office portfolio and improving fundamentals for its hotel portfolio, OUE REIT can face the future with confidence.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
