• 1Q15 numbers ahead of IPO forecasts
• Broadly within our expectations
• Still seeing positive rental reversions

1Q15 results broadly in line

OUE Commercial REIT reported 1Q15 distributable income and DPU of S$12.6m and 1.44 S-cents which are 3.0% and 2.9% higher than the forecasts in its IPO prospectus, respectively. The S$20.4m topline for the quarter also beat the IPO forecast by 7.0%, due to healthy positive rental reversions and stronger than anticipated occupancy rates at OUE Bayfront and Lippo Plaza.

1Q15 Net Property Income was similarly 12.1% above the IPO forecast as the Trust successfully managed cost pressures from utilities and maintenance expenses over the quarter. Overall, we judge this set of results to be broadly in line with our expectations; 1Q15 revenues, net property income and distributable income now make up 26.2%, 27.5% and 26.4% of our FY15 forecasts, respectively.

Positive operational numbers at both key assets

Management reported a healthy set of operational numbers from both key assets. Overall portfolio occupancy increased QoQ to 98.6% from 98.0%, and we also saw continued positive rental reversions at both assets, with 1Q15 renewal rates signed at OUE Bayfront and Lippo Plaza up 37.3% and 12.2% over preceding rents, respectively. OUE Bayfront’s occupancy dipped slightly QoQ to 99.2% this quarter (versus 100% as at end 4Q14) but average passing rents increased to S$10.60 (versus S$10.58 as at end 4Q14).

We understand that management has been active on the leasing front over the quarter and OUE Bayfront’s lease expiry, measured by gross rental income, has been reduced from 15.7% to 7.4%. We are encouraged that Lippo Plaza’s office occupancy continued to strengthen – up 2.2 ppt QoQ to 98.4% as at end 1Q15 – and similarly saw average passing rents rising to RMB9.18psm per day. Maintain BUY with an unchanged fair value estimate of S$0.88.

Source: OCBC Research - 7 May 2015