OUE Commercial REIT - OCBC Investment 2016-05-11: No surprises in 1Q16 results

OUE Commercial REIT - OCBC Investment 2016-05-11: No surprises in 1Q16 results OUE COMMERCIAL REIT TS0U.SI 

OUE Commercial REIT: No surprises in 1Q16 results 

  • 1Q16 results within expectations 
  • Portfolio occupancy improved to 94.8% 
  • Maintain HOLD 

1Q16 numbers were within expectations 

  • OUE Commercial REIT report that its 1Q16 amount available for distribution and distribution per unit increased 35.1% and 33.3% YoY to S$17.0m and 1.32 S-cents per share, respectively, mostly due to contributions from One Raffles Place (which was acquired in Oct 2015), a stronger performance from OUE Bayfront and lower maintenance costs at Lippo Plaza, partially offset by higher property operating expenses and property taxes. 
  • We note that finance costs over the quarter also rose QoQ from S$4.7m to S$13.8m given a higher amount of loans outstanding. 
  • In terms of the topline, 1Q16 gross revenues similarly increased YoY from S$20.4m in 1Q15 to S$42.9 given the impact from One Raffles Place and OUE Bayfront. 
  • We judge these results to be broadly within expectations and 1Q16 distribution now constitutes 26.7% of our full year forecast. 

Active lease management at portfolio assets 

  • OUECT’s overall portfolio occupancy improved from 94.3% as at end 4Q15 to 94.8% at the latest quarter, while we continue to see positive rental reversion of 4.9%, 3.0% and 5.3% at OUE Bayfront, One Raffles Place and Lippo Plaza, respectively. 
  • In anticipation of the significant office supply in 2H16, OUECT’s management has been actively managing the lease expiry profile of its portfolio. 
  • At at end 1Q16, 9.1% of the trust’s gross rental income is due to renewal in 2016 (down from 15.1% at the start of the year); we highlight all expiring leases in 2016 for OUE Bayfront has been renewed and more than 60% of the the asset’s gross rental income is up for renewal only in 2019 and beyond. 
  • The trust’s aggregate gearing stands at 40.5% as at end 1Q16 and, in light of the volatile interest rate environment, the manager has increased the proportion of its fixed rate borrowings from 63.8% as at 4Q15 to 79.2% as at 1Q16. 
  • Maintain HOLD on OUECT with an unchanged fair value estimate of S$0.65.

Eli Lee OCBC Securities | http://www.ocbcresearch.com/ 2016-05-11
OCBC Securities SGX Stock Analyst Report HOLD Maintain HOLD 0.65 Same 0.65