- While DPU was not disclosed for 1Q25, NPI of OUE REIT fell 12.1% y-o-y to S$53.2mil, in line with our forecast and forming 25% of FY25e estimates. The decline was mainly due to the income vacuum following the Lippo Shanghai divestment. On a same-store basis, NPI declined 4.1% y-o-y due to weaker performance from the hospitality segment.
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- FY25e DPU is likely to be supported by savings in finance costs, as the cost of debt inched down by 50bps. OUE REIT will utilise much of the Lippo Plaza divestment proceeds (~S$313.2mil) to pare down debt, lowering gearing to ~37% by year-end. We have raised our FY25e-26e DPU forecasts for OUE REIT by 4% to reflect the sharper-than-expected drop in financing cost.
The Positives
Sound operating metrics.
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- The resilience of Singapore’s office market persisted into 1Q25, with rental reversion at 9.9% despite cautious expansionary demand, as average passing rents remain below market levels. We expect rental reversion for office to remain in the mid-single digits in FY25e, supported by tight new CBD supply, given that Keppel South Central is the only completion in 2025.
- Retail rental reversion is expected to be supported by eased overseas consumption leakage, underpinned by market anticipation of S$ depreciation, alongside the continuous recovery of international tourism. As a result, we project retail rental reversion of mid-to-high single-digit in FY25e.
Cost of borrowing is trending down.
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