What is the news?

OUE reported an 8%y-y increase in 1Q13 revenue at $105.4mn, mainly due to higher revenue recognition from project Twin Peaks, partially offset by lower income from hospitality division and rental income from 6 Shenton Way. The group also recognized one-off finance expenses of ~$13mn in relation to exchange loss arising from a USD loan and its currency swap hedging instrument. PATMI as a result decreased 92%y-y to $1.8mn for the quarter. Excluding the one-off finance expenses, we estimate the PATMI would have been ~$12.6mn for the quarter.

How do we view this?

The higher finance expenses were the only negative surprise as we expect the expenses related to acquisition attempt of F&N to be sufficiently covered by the $50mn break fee. We are positive to note that the asset spin-off plan is underway while principle approval had been obtained to convert part of 6 Shenton Way into serviced apartments, which could serve as pipeline asset for the proposed hospitality REIT.

Investment Actions?

We maintain Accumulate with unchanged fair value of $3.24. Potential upside remains from the assets spin-off plan which could help to unlock its intrinsic value.

Source: PhillipCapital Research - 8 May 2013