OUE

OUE: CS note that a sale could be in the offing for Mandarin Orchard Singapore (MOS) and adjoining Mandarin Gallery (MG) mall, which were collectively valued at $1.7 bn. House raised RNAV from $3.80 to $4.47 and subsequently raised TP from $2.85 to $3.35 (based on a 25% discount to RNAV) and factor in the latest market valuation of these two assets, it appears that there are potential buyers willing to pay at least market rates. House estimate that MOS accounts for 40% of group EBIT, while MG accounts for 10–15%. As such, this divestment could significantly impact profits. So why would OUE consider selling them? The risk is that these assets, which sit on a remaining lease term of about 44 years, could start to devalue over time. Potentially a special dividend of 8%, if we assume 10% of proceeds are paid out as divs (assuming divestment at 20% premium to book). In house view, mgt could look to reinvest the proceeds, although it may be challenging given the compressing cap rates. Separately, CIMB take a positive view of OUE’s potential sale of Mandarin Orchard (MO) and Mandarin Gallery (MG). Add that industry room rates and asset prices are at elevated levels, making it an opportune time for OUE to recycle assets. OUE’s timing of the market has so far been very good.