OUE Commercial REIT - CIMB Research 2015-12-09: A big step forward

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OUE COMMERCIAL REIT TS0U.SI 

OUE Commercial REIT - A big step forward 

• Higher occupancy and average rents boost performance. 
• OUE Bayfront and Lippo Plaza enjoyed positive rental reversions of 22.3% and 7.7%, respectively. 
• Contributions from ORP to be felt from 4Q15 onwards. 
• Robust balance sheet with no refinancing till 2017. 
• Maintain Add with unchanged target price of S$0.81. 

■ Strong operational performance 

• OUECT reported a 5.7% increase in gross revenue to S$20.6m, thanks to higher portfolio occupancy of 97.1% as well as higher renewal rents achieved on reversion at OUE Bayfront and Lippo Plaza, which was 22.3% and 7.7% higher than preceding levels, respectively. 
• Distribution income came in at S$413.1m, translating into a DPU of 1.02 Scts. 

■ Higher occupancy, positive rental reversion 

• Portfolio occupancy crept up 1.8% pts to 97.1% as Lippo Plaza’s occupancy rose to 100% while, at OUE Bayfront, backfilling two-thirds of the space vacated by one tenant earlier helped boost take-up at the property to 97.4%. 
• In terms of lease expiries, the trust has a minimal 0.1% of income to be renewed for FY15 and a further 21% in FY16, largely from Lippo Plaza in Shanghai. 

■ Contributions from ORP to be felt from 4Q15 onwards 

• With the acquisition of c.68% of One Raffles Place (ORP), OUECT’s portfolio has expanded to 1.54m sf and is valued at cS$3.4bn, putting the trust on a more level playing field versus other office REITs and increasing its Singapore exposure to 85.3% of the portfolio, with a quality well-located property in the CBD. ORP comprises 774,567 sf of office and 102,530 sf of retail space. 

■ No refinancing requirements till 2017 

• With the completion of the purchase of ORP in Oct 15, OUECT’s gearing is expected to reach 40.9%, slightly higher than the industry average. However, balance sheet metrics remain healthy, with a weighted average debt maturity profile of 3.07 years, c.64% of interest cost hedged and no refinancing requirements till 2017. 

■ Maintain Add 

• Although FY15 DPU is affected by dilution from its recent rights issue, we expect the income stream from ORP to impact positively and boost FY16 DPU. 
• We retain our Add call, with an FY16 DPU yield of 7.6%, and our DDM-based target price of S$0.81.

LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2015-12-09

CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 0.81 Same 0.81