OUE-CT firm portfolio occupancy of 97.2%

3Q14 figures broadly in line
OUE-CT reported 3Q14 distributable income and DPU of S$12.2m and 1.40 S-cents, respectively, which are 3.2% and 2.9% ahead of the IPO Forecasts and broadly in line with our expectations. In addition, 3Q14 gross revenue of S$19.5m was 1.8% ahead of the IPO Forecast, while the NPI of S$14.9m for the quarter also exceeded the Forecast by 6.3%. Overall portfolio occupancy improved to 97.2% as at end 3Q14, versus 96.8% as at end 2Q14, and management indicates that they have seen positive rental reversions at both portfolio assets, OUE Bayfront and Lippo Plaza, over the quarter. OUE Bayfront remains 100% occupied as at end 3Q14, with average passing rents for the office component increasing to S$10.68 psf from S$10.66 psf last quarter. Management reports that newly committed rents for OUE Bayfront over 3Q14 ranged from S$12.50 to S$15.20 psf which is, on average, 10.2% higher than preceding rentals. Lippo Plaza had its occupancy rate improve to 94.4% as at end 3Q14 from 93.6% last quarter and similarly saw renewal rents in 3Q14 increase 5.6% versus preceding rents.

Maintain BUY with FV estimate of S$0.88 
OUE-CT’s aggregate leverage increased slightly to 39.8% (versus 39.5% as at end Jun-14) while average cost of debt dipped marginally to 2.57%. We understand that the REIT manager is currently focused on proactive leasing and cost management. For instance, we note that the REIT had incurred lower utilities expenses in 3Q14 following cost-saving initiatives to purchase OUE Bayfront’s utility consumption in bulk. Looking ahead, any future acquisitions of pipeline assets will likely come in FY15 and after. We believe OUE-CT represents attractive relative value versus its office S-REIT peers; despite providing one of largest exposure to the premium office space in Singapore, OUE-CT offers a consensus forward yield of 7.0% - the third highest in its peer group (average: 6.5%). Its price-to-book ratio of 0.74 is also lowest amongst peers. Maintain BUY with an unchanged fair value estimate of S$0.88.