SINGAPORE (Jan 9): OCBC Investment Research is maintaining its “hold” call on OUE Commercial REIT (OUE CT) with a fair value estimate of 67 cents, close to one standard deviation above the three-year historical mean.
This comes in spite of robust office sector sentiments which the research house sees extending into 2018.
In a Tuesday report, lead analyst Joseph Ng says he does not think valuations are particularly cheap at this juncture with the recent jump in OUE CT’s unit price of 4.2% on a year to date (YTD) basis. This has led to compression of the trust’s 12-month blended forward consensus dividend yield to about 6.4% – which is close to two standard deviations below the three-year mean, he notes.
See: OUE Commercial REIT posts 12.9% drop in 3Q DPU to 1.15 cents
Additionally, Ng remains cognisant that the expiry of OUE Bayfront’s income support is now within a one-year horizon.
The income support, which expires in Jan 2018, involves the trust’s sponsor providing a top-up of gross rental income of the property should it fall to be low $14.25 million within a quarter, subject to a maximum annual and aggregate limit of $12 million and $50 million respectively.
As at end 9M17, the level of income support drawn on is estimated to be at $2.3 million, which represents an increase of about 11.5% y-o-y.
“Given that OUE Bayfront’s committed office occupancy of 98.2% (as at 30 Sept 2017) is already relatively robust, we think that 2018 will be a year for OUE CT to capitalise on the improving market sentiments to establish firmer rental reversions, in order to mitigate the removal of the sponsor’s income support,” he adds.
As at 3.27pm, units of OUE CT are trading flat at 75 cents or dividend yield of 6.3% for FY18.
