Check what's next with OUE now that it's out of the F&N race

CIMB expects recycling moves.

With fears of OUE overpaying for F&N now removed, its share price which has lagged behind the sector should catch up, said CIMB.

According to CIMB, the key takeaway from this failed M&A is that OUE is serious about growing its asset base but with financial discipline. It expects more recycling moves.

Here's more from CIMB:

We lower our RNAV and cut FY12-14 core EPS by 7-10% for lower pricesfor Twin Peaks. But our target price is raised slightly for 1) compressed cap rates for its office assets and 2) a tighter 20% discount to RNAV (prev. 25%) as we benchmark to market averages.

We maintain our Outperform call given its attractive 31% discount to RNAV, with potential asset recycling being the catalyst.

Share price to catch up

Property stocks have re-rated and outperformed the broader market in the past four months, but not OUE. With OUE now out of the F&N race, we believe its valuations should catch up with the sector.

Developers currently trade at an average of 19% discount to their RNAVs vs. OUE’s 31% discount. OUE also trades at an adjusted 0.7x P/BV, much more
attractive than office REITs’ 0.8-1.1x P/BV. With 44% of its GAV in CBD offices, we see OUE as a much more attractive proxy for compressing cap
rates and a cheaper play on a bottoming of the office cycle.

What next for OUE?
With the F&N saga now behind us, we believe that investors’ focus should now shift towards the quality of OUE’s assets, which remains unchanged. We see a few positive takeaways from this saga

1) OUE is serious about growing its asset base,

2)it is not shy about making bold moves and

3) it has the financial discipline to walk away from deals if pricing gets too high.

We expect OUE to remain on the acquisition hunt and possibly recycle existing assets along the way to enhance its portfolio. Of the lot, Mandarin Orchard/Gallery and DBST have older tenures and could be candidates, in our view.

So far, management’s track record in asset acquisitions has been good, with additions seeing substantial revaluation uplifts in recent years.

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