Sunday, 19 January 2014

OUE Commercial REIT



OUE Commercial REIT ("OUE C-REIT") is launching its REIT at $0.80 per unit. The prospectus is here. The offer will end on 23 Jan 2014 at 12pm. 

There will be 208m units for the IPO of which 151.75m Units will be for Placement and 56.25m shares for the public.The market cap will be $1.39 billion based on the IPO price.

Initial Portfolio

The initial portfolio will consist of OUE Bayfront Property in Singapore and Lippo Plaza Property in Shanghai.


OUE Bayfront and OUE Tower comes with a 99 year leasehold starting from 2007 but Lippo Plaza Property has only a 50 years lease starting from 1994.

There will be 3 properties of which OUE C-REIT will have the right of first refusal and they are:
  • One Raffles Place
  • OUE Downtown 2 and Downtown Gallery
  • US Bank Tower
Shareholders


The Cornerstone investors are all from China. Founder of Summit Group as well as the husband and wife team Mr. Gordan Tang and Madam Chen Huidan from Singhaiyi.  OUE will continue to own 45.2% post IPO and the public will hold 28.8%.

Yield

This is after, another REIT. It is a yield play, so buy only if you like the assets and the yield of 6.8% for FY2014 and 6.89% for FY2015. Note that without the income support, the yield would have dropped to 5.56% and 5.75% respectively.

The distributions will be made on a sem-annual basis within 90 days from the months ending June and Dec.

Peer Valuation



This is the peer valuation table as of last Friday. You can see that from the peer valuation, without the income support, the yield is really one of the lowest among its peers. However, at 0.76x book value, it is one of the "better valued" REITs, even though OUE Ltd is trading at 0.73x Price to book!

What I Like about OUE C-REIT
  • A chance to own properties along the Marina bayfront below its "market valuations". According to the prospectus, the discount is around 23.9% based on the offering price. 
  • A strong sponsor (Lippo Group) with ROFR Properties
  • Some potential for rental improvements (but that effect is already off-set by the income support)
  • Spread out lease expiry

My Concerns
  • Income support again?! Seemed like a "feature" associated with OUE 
  • Given the high gearing of 42.3%, this counter will be impacted by the FED tapering and rising interest rate
  • Short lease life for the China properties.
  • The previous OUE HT is hovering around its IPO price.
My Ratings

I nearly fell asleep trying to analyze this counter. It is another REIT to me and not terribly exciting. I am personally not interested in this REIT but given that it is better valued than most of its peers, the downside is probably limited but don't expect too much fireworks either. I will give it a one chilli rating, buy only if you like the properties and is looking for yield in your portfolio but beware of rising borrowing costs should interest rate goes up!

5 comments:

Foreign Earned Income Tax Credit said...

Thanks for sharing.

Anonymous said...

Thank you Mr IPO. Appreciate your aharing of info.

Mr. IPO said...

Pleasure!

boomxhoo said...

How do you calculate the debt ratio?

Mr. IPO said...

Ratio wrong?

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