• FY14 earnings within expectations
• US Bank Tower now 80% committed
• AEI plans on track

FY14 earnings boosted by fair value gains

OUE announced 4Q14 PATMI of S$127.5m, which improved significantly against a loss of S$66.3m in 4Q13, mostly due to fair value gains on OUE Bayfront, Lippo Plaza, US Bank Tower and an investment in a mutual fund, and due to also the absence of fair value losses on investment properties booked in the same period last year. FY14 gross profit and PATMI cumulates to S$179.6m and S$1,094.0m, constituting 96.4% and 111.8% of our full year forecasts, respectively, which we judge to be broadly in line with expectations. In terms of the topline, 4Q14 revenue decreased 4.6% YoY to S$416.4m mainly from the impact of the loss of revenues from the China hotels which were disposed in Sep-13 and lower contributions from OUE Twin Peaks, partially offset by the inclusion of revenues from Lippo Plaza and US Bank Towers. Management has proposed a final cash dividend of 1.0 S-cent per share, bringing the total cash dividend for FY14 to 2.0 S-cents per share, in addition to the distribution in specie of one OUE Hospitality Trust stapled security for every six OUE shares in Mar-14.

AEIs on track at US Bank Tower and OUE Downtown

The US Bank Tower now has a 79.6% committed occupancy rate, and enhancement works at the observation deck and restaurant are slated for completion in mid-2015. Management also reports that the refurbishment work at OUE Downtown is on track to complete by 2016, which will transform the asset’s existing podium into a five-storey retail mall. The group also recently divested Crowne Plaza Changi to OUE Hospitality Trust in Jan-15; in addition, the 10-storey extension to the hotel will occur after its TOP which is anticipated before Jun-16. The group continues to enjoy a good balance sheet, with a relatively low net gearing of 43% and a cash balance of S$162.0m. We continue to see value in OUE shares currently trading at a 0.52x and 0.66x its book value and RNAV, respectively.

Maintain BUY with an unchanged fair value estimate of S$2.69 (20% discount to RNAV).

Source: OCBC Research - 16 Feb 2015