OUE

OUE: Grp has lodged its preliminary prospectus with MAS and is looking to raise $614m by listing a REIT. Offer price price is expected to be between 88c - 90c per stapled security. OUE will offer 434.6m such securities to the public and institutions, of which about 51.1m will be for the retail investors. Another 247.2m will go to cornerstone investors. The trust will comprise of two assets - the Mandarin Orchard hotel ($1.22b/69%) and the Mandarin Gallery mall ($536m/31%) along Orchard Road. Based on the IPO price range. The REIT will offer a forward yield of 7.3-7.5%, which is marginally higher than the average 7.2% forward yield for SG listed hospitality trusts sector. Cornerstone investors include Credit Suisse (Private Banking and Wealth Management), Goldhill Group, Gordon Tang, Lucille Holdings and Splendid Asia Macro Fund. Lead managers for the offering include Credit Suisse, Goldman Sachs and Standard Chartered, with co-leads Bank of America Merrill Lynch, Deutsche Bank and OCBC. UOB Kay Hian note that a potential special dividend by OUE is still substantial with a 5.0-8.3% yield based on the current share price and a payout ratio of 30-50% of the remaining net cash proceeds following the offering. OUE’s gearing will improve to 22% post-listing of OUE H-REIT from 62.1% currently, while will provide opportunities for OUE to leverage on its balance sheet to pursue development projects across geographies and property segments. OUE has granted a Right of First Refusal (ROFR) to OUE H-Trust to acquire relevant hospitality assets in the pipeline. OUE has identified $413m worth of hospitality assets, including Crowne Plaza Changi Airport, Meritus Mandarin Haikou and Meritus Shantou China, for potential divestment into OUE H-Trust. Further developments such as the addition of 200 rooms at Crowne Plaza Changi Airport and the partial conversion 163,000sf of NLA at 6 Shenton Way into serviced apartments will boost pipeline assets. UOB Kay Hian maintains BUY with an unchanged target price to $3.63 TP, which is pegged at a 20% discount to house RNAV of S$4.54/share. Leave RNAV unchanged pending confirmation on the successful listing of the hospitality REIT. OUE is trading at a steep 37% discount to its RNAV.