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.
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.