OUE Limited - OCBC Investment 2020-08-07: 1H20 PATMI In Red Due To Fair Value Loss On U.S. Bank Tower


OUE Limited - 1H20 PATMI In Red Due To Fair Value Loss On U.S. Bank Tower

  • Fair value loss of S$310m on U.S. Bank Tower.
  • Sale of U.S Bank Tower is expected to complete in Sep 2020.
  • No interim dividend was declared due to cash conservation.

1H20 net loss of S$207.2m

  • OUE Limited (SGX:LJ3)’s 1H20 results were below our expectations. 1H20 revenue fell 28% y-o-y to S$311.4m, dragged by weaker performances from all divisions except for the Investment Properties division and rental rebates granted to tenants.
  • PATMI turned from a profit of S$61.9m in 1H19 to a loss of S$207.2m in 1H20, largely due to a fair value loss recognised on the sale of U.S. Bank Tower and weaker operating environment.
  • No interim dividend was declared in 1H20 for prudent cash management.

Performances were impacted by COVID-19

  • On a segmental basis,
    • Development Properties declined 38% y-o-y to S$98.5m in 1H20 due to lower sales completion from OUE Twin Peaks units.
    • Healthcare dropped 1.7% y-o-y to S$14.9m on the back of lower management fees earned by First REIT Management Ltd.
    • For OUE’s Hospitality segment, performance was severely impacted in 1H20, with revenue declining 55% y-o-y to S$49.6m, due to weak occupancies and decline in banquet sales amid COVID-19.
    • On the other hand, Investment Properties segment saw a marginal growth of 1.9% y-o-y in revenue to S$141.6m, driven by additional revenue contribution from Mandarin Gallery.

Sale of U.S. Bank Tower

  • OUE entered into a sale and purchase agreement for the sale of U.S. Bank Tower at a sale consideration of US$430m, which is below its valuation of US$650m (as at 31 Dec 2019). As such, a fair value loss of S$310m was recognised. We understand that tenants of U.S. Bank Tower have either reduced their space requirements or closed temporarily due to COVID-19.
  • Management is cautious on the outlook of the U.S. market, given the impact of COVID-19 and sees the disposal as opportune. The disposal will enable OUE to unlock capital to pursue higher reinvestment opportunities in the future and pare down its existing debts.
  • Factoring the disposal of U.S. Bank Tower and weaker performances across divisions, our fair value estimate decreases from S$1.38 to S$1.22.
  • See OUE Share Price; OUE Target Price; OUE Analyst Reports; OUE Dividend History; OUE Announcements; OUE Latest News.

Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2020-08-07
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