Wednesday, October 9, 2013

OUE Limited: Well positioned for CBD office recovery (OCBC)

OUE Limited:
Fair value S$3.32
add: 12m dividend forecast S$0.08
versus: Current price S$2.50

Well positioned for CBD office recovery
• Initiate with BUY and S$3.32 FV
• Possible office REIT listing
• Tailwinds for Core CBD office in FY14

We initiate coverage on OUE with a BUY rating and a fair value estimate of S$3.32. Our fair value applies a relatively less punitive 15% discount to RNAV due to three key reasons. First, the bulk of OUE’s portfolio is positioned in the Core CBD office micro-market
which we believe will enjoy significant tailwinds in FY14; second, OUE has fairly limited exposure to the uncertain residential sector (~10% of its RNAV); and finally, management’s sharp track record in creating value, seeking accretive deals and recycling capital expediently. On 25 Sep 2013, OUE also announced it was exploring the listing of a commercial REIT on the mainboard of the SGX. The initial portfolio is expected to include OUE Bayfront and other commercial properties owned by Lippo China Resources Limited (a company listed on HKSE). While the timing and size of the listing is yet to be confirmed, we believe this capital recycling may be an attractive catalyst for value realization and a possible special dividend ahead.

Rated BUY with a S$3.32 fair value estimate
We initiate coverage on OUE with a BUY rating and a fair value estimate of S$3.32. Our fair value applies a relatively less punitive 15% discount to RNAV and we have positioned its discount on the bullish end of the spectrum for large-cap developers listed on the SGX due to three key reasons. First, the bulk of OUE’s portfolio is positioned in the Core CBD office micro-market which we believe will enjoy significant tailwinds in FY14; second, OUE has fairly limited exposure to the uncertain residential sector (~10% of its RNAV); and finally, management’s sharp track record in creating value, seeking accretive deals and recycling capital expediently.

Exploring a commercial REIT listing ahead
On 25 Sep, the group also announced it was exploring the listing of a commercial REIT on the mainboard of the SGX. The initial portfolio is expected to include OUE Bayfront and other commercial properties owned by Lippo China Resources Limited (a company listed on HKSE). While the timing and size of the listing is yet to be confirmed, we believe this capital recycling may be an attractive catalyst for value realization and a possible special dividend ahead.

Core CBD office micro-market likely to see tailwinds in FY14
A REIT underpinned by Grade A office assets may be well-received as we anticipate an environment of limited supply, firm net absorption and improving rentals in the Core CBD micro-market over 2HFY13-FY14. While we expect Grade A office rental rates to stay mostly flat YoY in FY13, we forecast a 10% YoY rise in rental rates over FY14 as an anticipated net absorption rate of 2.0m sq ft could drive vacancy rates as low as 1.6% with limited office supply coming online over that time (only CapitaGreen with 700k sq ft NLA).


Source/Extract/Excerpts/来源/转贴/摘录: OCBC-Research,
Publish date: 03/10/13

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