Should You Invest In OUE REIT [Fundamental Analysis]

In this article, we'll conduct a fundamental analysis and review of OUE REIT and its suitability to achieve the following investment objective: To deliver a stable dividend yield of 5% to 6% per year while having high capital preservation ability.

Information Is Accurate Up To May 24

Business Description

OUE REIT is a diversified REIT that was listed in 2014 and owns 7 properties in Singapore comprising offices, hotels and retail space.

What I Like About OUE REIT:

Underlying properties are 100% in Singapore and are located in decent areas. This should ensure rental stability as it did in the past. (Figure 11)
The absence of distribution from non-operating items such as income support and management fees has resulted in greater transparency in valuing the counter. (Figure 8)

What I Do Not Like About OUE REIT:

Due to the diversified nature of the REIT, it is difficult for investors to accurately assess the valuation and performance of the REIT relative due to the lack of comparable REITs. I am also somewhat against the management's move to expand into the hospitality sector and the partial divestment of their interest in OUE Bayfront in hopes of using the funds for future acquisitions.
It is difficult to assess the performance and the quality of the management’s decision given the recent significant expansion into hospitality in 2019 of which COVID-19 severely impacted the performance of the REIT from 2020.
The manager’s direction moving forward seemed to be on hotels, offices, or mixed-used development in prime CBD areas of other key gateway cities which, given the track record, I am not as confident in the management to perform as well as compared to other REITs whose management specializes in a specific market and type of property.

Updates From Recent Performance (1Q 24)

General Comments:

Revenue (+9.5% Y.O.Y) and Net Property Income (6.9% Y.OY) grew on the back of positive rental reversion of both office and retail space as well as the strong performances in the hospitality segment driven by strong tourism in Singapore.

Positive Headwinds:

No refinancing requirement until the second half of 2025 will help ensure that the cost of debt remains stable in the coming 12 months. By then, the cost of debt upon refinancing should be comparable to the weighted average cost of debt today given that interest rates are expected to come down starting from the second half of 2024. (Figure 6)

Negative Headwinds:

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- Work In Progress -

Daniel is a Licensed Independent Financial Consultant with MAS and a Certified Financial Planner (CFP®).

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