OUE COMMERCIAL REIT
TS0U.SI
Attractive valuation beyond near-term dilution
- OUECT’s 2QFY15 distributable income rose 2.6% yoy on Lippo Plaza's better performance, but DPU slid 29% yoy on dilution impact of its rights issue.
- 1H15 DPU was in line, at 46% of our FY15 forecast.
- Moving forward, we expect growth to come from higher occupancy and rental reversion at OUEB as well as ORP's additional contribution and better occupancy.
- We cut our FY16 DPU by 14% and DDM-based target price to factor in near-term dilution from its rights issue. (TP S$0.81)
- However, we keep our Add rating, as its FY16 dividend yield of 7.9% remains attractive compared to the peer average of 7.1%.
Higher rental reversion, but lower occupancy
- OUECT’s 2QFY15 distributable income was up 2.6% yoy, largely on higher rental income from Lippo Plaza (LP) that offset higher property expenses.
- DPU slid 29% yoy due to the dilution impact of the rights issuance in anticipation of the One Raffles Place (ORP) acquisition, broadly in line with our estimate.
- Rental reversions at both OUE Bayfront (OUEB) and LP were commendable at 14.6% and 12.9% respectively. However, both recorded a drop in occupancy from 98-99% in the previous quarter to ~95% as at end-2Q15.
- The dip in occupancy at OUEB is largely due to the non-renewal of a lease, and should improve as the manager has since back-filled about 52% of the space vacated.
Room for growth in Singapore
- We believe there is further room for growth in OUECT’s Singapore properties, from both increase in occupancy and rental reversion.
- OUEB’s occupancy should rise from the current 95% and continue to record healthy rental reversions as its passing rent of S$11.04 psf pm remains below recent signing rent of S$12-14.50 psf pm.
- We also believe there is room for improvement at both ORP’s occupancy, estimated at 85-90% by DTZ.
- Better performance at OUEB and ORP should more than offset potential weakness at LP (17% of enlarged portfolio revenue) from the incoming supply of office in Shanghai.
Maintain Add on attractive valuation
- We note near-term dilution, as the rights issue closed on 27 Jul 2015 and more income from ORP is only expected in 4Q15.
- However, we keep our Add call as its FY16 dividend yield of 7.9% is superior to the peer average of 7.1%.
TAN Xuan CFA | PANG Ti Wee | LOCK Mun Yee | http://research.itradecimb.com/ CIMB Securities Research 2015-08-12
0.81
Down
0.85
