31 July 2014
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A firm set of 2Q14 results

  • 2Q14 numbers ahead of IPO forecast

  • Positive rental reversions
  • Maintain BUY at S$0.88 FV


2Q14 numbers looking firm

2Q14 distributable income and DPU came in at S$12.5m and 1.43 S-cent, respectively, which is 5.5% and 5.1% higher than forecasted in its IPO Prospectus and in line with our expectations. 2Q14 gross revenues were S$18.7m, marginally lower (-0.3%) versus the forecast, while NPI of S$14.3m is 4.6% ahead of the forecast. The trust pays its distributions on a semi-annual basis, and the book closure for its first distribution of 2.43 S-cents per unit will be on 7 Aug-14.

Positive rental reversions seen at both assets

Overall portfolio occupancy remained fairly healthy at 96.8% as at end Jun-14, and management indicates that only 2.9% of the portfolio, by gross rental income, is up for renewal over 2H14. OUE Bayfront remains 100% occupied as at 2Q14, with average passing rents for the office component increasing to S$10.66 psf from S$10.61 psf last quarter. Management reports that newly committed rents over the quarter for OUE Bayfront ranged from S$11.50 to S$15.20 psf which is, on average, 6.1% higher than preceding rentals. Lippo Plaza saw its occupancy rate dip QoQ to 92.9% as at end Jun-14 from 95.9% due to some tenants not renewing their leases, though renewal rents in 2Q14 still showed a 4.3% increase versus preceding rents.

Maintain BUY

OUE-CT’s aggregate leverage dipped slightly to 39.5% (versus 40.8% as at end Mar-14) while average cost of debt edged up to 2.59%. Management has indicated that they are focused on executing and stabilizing existing portfolio assets in FY14 and will only expect their first acquisition to come in FY15 and after. We continue to believe that OUE-CT shows attractive relative value versus peers. Despite providing one of largest exposure to the premium office space in Singapore, OUE-CT offers a consensus forward yield of 6.7% – the second highest in its peer group (average: 6.0%). Its price-to-book ratio of 0.77 is also lowest amongst peers. Maintain BUY with an unchanged fair value estimate of S$0.88.



31 July 2014
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Riding the wave

OUE Commercial REIT’s (OUE CREIT) 2Q14 results were in line with expectations, with 2Q14 DPU accounting for 27% of our full-year forecast. Given that the REIT has room for further growth and its relatively attractive valuations, we maintain our Add rating, with a higher DDM-based (discount rate: 7.6%) target price of S$0.93 as we roll forward our valuation to FY15 earnings.

Stable portfolio

OUE CREIT reported a stable quarter of earnings and achieved positive rental reversion of 6.1% for OUE Bayfront (OUEB) and 4.3% Lippo Plaza (LP), lifting the passing rent at these properties to S$10.66 psf/mth and Rmb9.11 psm/day. During the quarter, occupancy for OUEB remained full while LP registered a slight dip in occupancy to 93.6% as some tenants did not renew their leases. However, management guided that as at July, occupancy at LP has crept back to >94% and it is confident that occupancy will exceed 95% by year end.

Continues riding the rental growth in Singapore

With Singapore’s office market maintaining its rental growth (+3.4% yoy in 2Q14), we expect OUE CREIT to continue riding this upward cycle, particularly with 23.7% (by gross rental income) of its leases due in FY15. In addition, with the recent committed rents at OUEB varying between S$11.50 and S$15.20 psf/mth, we remain confident that a blended gross supported rent of c.S$11.80 psf/mth is achievable before 2018. On the other hand, we expect rental growth in the Puxi area of Shanghai to remain subdued due to the impending office supply. However, with the locality of LP and the fact that leases in this property tend to be popular among tenants that require a smaller floor area, we believe LP will be able to maintain a high occupancy through FY15 as the market digests the new supply.

Maintain Add

The stock is currently trading at 6.4%/6.5% of FY14/15 dividend yield and 0.8x FY14 P/BV vs. its peers’ valuations of 5.7%/6.0% and 0.9x P/BV. In view of this, and its stability and room for growth via positive rental reversions for OUEB, we maintain our Add rating, with a higher TP of S$0.93.


30 July 2014
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Positive tone on outlook

  • 2Q14 DPU above prospectus forecast
  • Continued focus on lease management
  • Financial position remains robust


2Q14 results within expectations

Soilbuild Business Space REIT (Soilbuild REIT) reported a firm set of 2Q14 results, with gross revenue of S$16.7m coming in 0.9% higher than its prospectus forecast and NPI of S$14.0m 3.4% above forecast. The positive topline performance was due to new revenue stream from Tellus Marine (acquisition completed in May), while NPI was boosted further by lower maintenance costs incurred for both Eightrium and Tuas Connection. Distributable income and DPU, on the other hand, stood at S$12.1m and 1.50 S cents, both at 1.3% ahead of the respective forecasts. Together with 1Q distribution, 1H14 DPU amounted to 3.062 S cents and formed 49.8% of our full-year DPU projection. This is in line with our expectations, as Tellus Marine will make full-quarter revenue contribution for the rest of year.

Outlook remains sanguine

We note that management remains confident in delivering its forecast distribution for FY14, notwithstanding the current challenges in the industrial market and upcoming supply in industrial space in the year ahead. To achieve this, Soilbuild REIT will continue to focus on early renewals or re-leasing of space that expires in 2H14. We understand that over 85% of all lease expiries due in 2014 has already been renewed, re-leased or pre-committed, which should provide a high degree of certainty to its income stream. For 2Q14, leasing activity appears healthy in our view, as leases secured/renewed all saw positive rental reversions ranging from 3.6% to 31.7%. Only the portfolio occupancy dipped slightly from 100% in 1Q to 98.5% due mainly to a non-renewing lease expiring in Tuas Connection.

Maintain BUY

As at 30 Jun, Soilbuild REIT’s aggregate leverage also remained robust at 30.3% (1Q: 29.1%), providing it good debt headroom for future acquisitions. All-in interest costs dropped slightly from 3.12% in 1Q to 3.08% as Soilbuild REIT drew down debt facility on floating rate to fund the acquisition of Tellus.

Tellus Marine in 2Q. While its fixed interest rate exposure is reduced 5ppt to 95%, this is still higher than the sector average. We maintain BUY and S$0.88 fair value on Soilbuild REIT.

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