Wednesday, December 18, 2013

OUE :One Step Closer To C-REIT Listing (MKE)

OUE Limited
Buy (unchanged)
Share price: SGD2.46
Target price: SGD2.83 (from SGD3.05)
One Step Closer To C-REIT Listing

Spin-off gets EGM nod. OUE’s plan to divest OUE Bayfront into a commercial REIT (C-REIT) has been approved by shareholders at an EGM held on 4 December. The shareholders have also given the nod to a distribution in specie of OUE Hospitality Trust (OUEHT) units to OUE’s shareholders in lieu of a special cash dividend. We view this development positively as it preserves OUE’s cash to fund outstanding capex. We maintain our BUY recommendation with a lower TP of SGD2.83, pegged to a deeper 35% discount to RNAV (previously 30%) to factor in the uncertainties associated with QE tapering.

OUE C-REIT listing likely in 1H14. OUE is one step closer to listing OUE C-REIT, after obtaining shareholders’ approval to divest OUE Bayfront, while Lippo China Resources also had its own shareholders’ approval to sell Lippo Plaza in Shanghai. Both assets will be the initial seed assets for the C-REIT, which we think may be listed in 1H14, depending on market conditions.

Trimming stake in OUEHT. During the EGM, OUE shareholders also approved the distribution in specie of OUEHT units held by OUE to other shareholders on the basis of one OUE-held unit for every six OUE shares. This will effectively reduce OUE’s stake in OUEHT from the current 45% to ~33%. Based on OUEHT’s current price of SGD0.875, the distribution in specie is equivalent to a special dividend of SGD0.146 per OUE share. We view this development positively as it not only preserves OUE’s cash to fund outstanding capex requirements of SGD260m but also improves OUEHT’s free float.

Twin Peaks to be leased out? During the last results briefing, management said the URA had disallowed part of Twin Peaks to be converted into serviced apartments. As a result, management is looking at the possibility of keeping the units in one tower for rental instead, given the slow sales progress. We reckon this would entail OUE having to fork out ~SGD600m to purchase the units to be held under an investment holding company.

Maintain BUY with lower TP. OUE may increasingly be perceived as a holding company and there may be acquisition risks, especially if it ventures into new markets. We maintain our BUY recommendation given its attractive valuation.

Source/Extract/Excerpts/来源/转贴/摘录: MKE-Research,
Publish date: 17/12/13

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