SINGAPORE (Nov 19): Deutsche Bank is keeping its “buy” recommendation on OUE with an unchanged target price of $3.00, amid plans by the real estate group to cash up for the next phase of growth.
“OUE stated that it is pursuing a fund management platform listing in the first half of 2019,” says lead analyst Joy Wang in a report on Nov 12.
“Based on current EBITDA, management estimates that the platform could be valued at between $300-400 million, based on a 11-13x P/E multiple. Funds would be used to benefit and help grow the REITs under management,” she adds.
OUE and subsidiary OUE Lippo Healthcare in September announced the proposed acquisition of Bowsprit Capital Corporation, the manager of SGX-listed First REIT.
Executive chairman Stephen Riady said the company is targeting asset under management growth to over $10 billion by 2019, from approximately $8.0 billion currently.
“Management believes that there are significant value unlocking opportunities within First REIT and OUE Lippo Healthcare, especially with regard to land banks in Indonesia and Malaysia, as well as optimisation of operations,” says Wang.
“Management stated that its strategy for the next 6-9 months will be to clean up its structure and investments, with an aim to be in a net cash position in 1H next year,” she adds.
Among these are the sale of the group’s stake in Gemdale Properties and Investment Corporation (GPI), a real estate developer principally engaged in property investment, development and management of residential, commercial and business park projects in Greater China.
“The company highlighted that it has already started to notify fund managers of its intention to redeem funds, and has received offers for its stake in Gemdale,” says Wang.
“We believe that the disposal of these investments could result in losses from disposal. Nevertheless, management noted that it believes significant opportunities could arise in the next 12-24 months, and it will look to optimise its balance sheet in anticipation,” she adds.
In addition, she says OUE has also revealed it is in final negotiations regarding the sale of US Bank Tower, and expects to finalise the disposal in January 2019. US Bank Tower was acquired at US$367.5 million last valued at US$605 million.