• FV gains from Mandarin Orchard
• Firm outlook for CBD office
• FV reduced to S$2.87

Significant boost from fair value gains

OUE reported 1Q14 PATMI of S$945.6m, which is up more than 100% YoY due to fair value gains from Lippo Plaza (S$114.8m) and Mandarin Orchard Singapore and Mandarin Gallery (S$986.4m), offset by an allowance for foreseeable loss of S$105.0m from Twin Peaks. Adjusting for the impact of these onetime items, we estimate core 1Q14 PATMI at S$6.5m which is broadly within expectations. In terms of the topline, 1Q14 revenues increased 1.5% to S$106.9m; this was mainly due to contributions of the Lippo Plaza property and the US Bank tower, offset by a S$9.1m dip in property development income.

Firm conditions in the CDB office segment

As anticipated, conditions in the CBD office segment were firm over 1Q14. The average core CBD occupancy rate increased to 95.7% as at end 1Q14 from 95.2% as at end 4Q13. In addition, Grade A office rentals rose 5.1% QoQ to S$10.25 psf / month as at end 1Q14. OUE Bayfront, held by OUE Commercial REIT, remains 100% occupied and saw 13.9% positive reversions to attain passing rentals of S$10.61 psf / month. For Lippo Plaza in Shanghai, its occupancy rate increased an impressive 5.2ppt from 91.3% as at end 4Q13 to 96.5% as at end 1Q14 and experienced a 9.2% positive rental reversion for new leases signed, with current passing rents currently at RMB 9.10 psm / day. Over 1Q14, the sale of residential units at Twin Peaks contributed S$9.4m in property development income; management continues to report a challenging market environment for the high-end residential property segment in Singapore.

Abundant cash for capex commitments

The group currently enjoys a firm balance sheet with S$864.6m in cash with a healthy net gearing of 41%. We note this is abundant for its committed capex needs ahead estimated at S$343.3m. Maintain BUY. Our fair value estimate is adjusted to S$2.87, from S$3.32 previously, after incorporating into our model the new structure of the group after its listing of OUE Commercial REIT.

Source: OCBC Research - 12 May 2014