• 1Q17 DPU down 6.8% YoY
• Portfolio occupancy at 95.8%
• Balance sheet remains firm

Adjustment for Amount of China-sourced Profits to Statutory Reserve

OUECT announced that 1Q17 amount available for distribution fell 2.3% YoY to S$16.6m mostly due to an adjustment for the amount set aside for the transfer of China-sourced profits from Lippo Plaza to statutory reserve, which is deemed a prudent measure by the manager to maintain sustainable distribution to unitholders, and as a result, 1Q17 DPU similarly fell 6.8% YoY to 1.23 S-cents.

That said, we saw 1Q17 revenues and net property income increase YoY by 4.4% and 4.2% to S$44.8m and S$34.6m, respectively, mainly due to firm performances from all three properties in the portfolio. We judge these results to be broadly within expectations and 1Q17 distribution now constitutes 25.2% of our full year forecast.

Improved Occupancy Across All Three Portfolio Assets

Management reported that committed office occupancy at all three portfolio properties increased 1.0 percentage point over the quarter to 95.8%. OUE Bayfront is 100% occupied as at end 1Q17, with average passing office rents at S$11.67 psf per month in Mar 2017. Given that there is significant office supply in Singapore, OUECT has termed out the expiry of office leases such that more than 75% of OUE Bayfront’s gross rental income is due for renewal only in 2019 and after.

Over the quarter, the occupancy rates at One Raffles Place and Lippo Plaza similarly improved to 93.0% and 95.8% with average passing rents at S$10.21 psf per month and RMB9.88 psm per day, respectively. OUECT continues to enjoy a firm balance sheet with approximately 81.2% of its borrowings on a fixed rate basis, which will hedge against interest rate volatility in a rising rate environment, and the manager has also refinanced OUECT’s Singapore dollar loans due in 2017 and 2019 ahead of maturity in Jan 2017, with a new five-year facility due in 2022.

Maintain HOLD on OUECT with an unchanged fair value estimate of S$0.65.

Source: OCBC Research - 8 May 2017