OUE REIT – Prime CBD commercial assets drive performance February 3, 2026 17

PSR Recommendation: BUY Status: Maintained
Last Close Price: 0.36 Target Price: 0.45
  • 2H25/FY25 DPU of 1.25/2.23 Singapore cents rose 10.6%/8.3% YoY, beating our expectations and representing 62.5%/111.5% of our FY25e forecast. The outperformance was driven by a 21% YoY decline in FY25 finance costs, stronger operational performance in the commercial segment, as well as a 49.3% YoY increase in joint venture contributions.
  • Commercial segment like-for-like (excludes Lippo Plaza Shanghai) revenue and NPI grew 3.9% and 5.4% YoY to S$173mn and S$130mn respectively in FY25. Office portfolio maintained high occupancy at 95.4% with positive rental reversions of 9.1%, indicating flight-to-quality trend for Prime CBD assets. This extended to OUE REIT’s joint venture, with OUE Bayfront earnings surging 49.3% YoY to S$14.5mn in FY25.
  • We maintain BUY with a higher DDM-based TP of S$0.45 (prev: S$0.40) as we roll forward our forecast. We believe its current portfolio, following the Lippo Plaza Shanghai divestment, reflects lower risk and warrants a lower cost of equity of 6.3% (prev: 6.8%). At FY26e dividend yield of 6.2%, and a P/NAV of 0.64x, valuation remains compelling. As OUE REIT embarks on its Phase 3 Value Creation Journey, the focus is expected to be on asset recycling to redeploy capital from mature assets into similar risk-adjusted assets with higher yields.

 

 

 

 

 

The positives
+ Stronger commercial performance. Office segment achieved 9.1% positive rental reversion
in FY25 at 95.4% occupancy. This was due to strong demand from sectors such as banks,
maritime and the IT sector. Singapore’s office portfolio passing rent of S$10.97 psf sits 11%
below the S$12.30 market rate in 4Q25 with room for higher reversion. For instance, 1/3 of
Deloitte’s lease of c. 150k sqft expires in 2026. Given current rental rates below market for
Deloitte’s lease, there is potential for strong rental reversion even if Deloitte does not renew.
With no new Grade A office supply until 2028 and vacancy tightened to 4.5%, office
fundamentals remain supportive of continued reversion.

+ Cost of debt has fallen significantly. Cost of debt has fallen by 80 bps YoY to 3.9% (Dec 25)
from 4.7%, cutting FY25 finance costs by 17.6% to S$87.8mn. OUE REIT’s lower fixed rate debt
during the year (67% as of Sep 25) compared to peers enabled it to benefit more from the
SORA decline. It also used a portion of the Lippo plaza divestment proceeds to reduce gearing
from 39.9% to 38.5%. A $S100mn bond, the portfolio’s most expensive debt at c. 4%, matures
in 2026 and we believe refinancing should deliver meaningful interest savings. OUE REIT has
a well staggered debt maturity profile with low refinancing risk as only 11.5% of total debt is
maturing in 2026. 

 

+ Salesforce Tower acquisition opportunity. The partial stake (c. 20%) in Sydney Salesforce
Tower is expected to be fully funded by reserves with no equity dilution. Located in Sydney’s
prime Circular Quay corridor, the building benefits from strong tenant demand (95%+ Grade A occupancy), limited office supply in 2026, and positive rental momentum. Salesforce Asia Pacific HQ occupies the building with c. 5 – 6 years WALE remaining at below-market rent, providing both tenure stability and reversion upside if there is non-renewal. OUE REIT will
also have a strong pipeline asset due to potential pre-emption rights if existing owners choose
to exit. 

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About the author

Profile photo of Hashim Osman

Hashim Osman
Research Analyst
PSR

Hashim graduated from the National University of Singapore with a degree in Business Administration.

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