OUE Commercial REIT first of REIT listings on SGX this year

OUE Commercial REIT is set to be the first major initial public offering (IPO) in Singapore this year.

It will also be the first among a slew of trust listings — including the ones planned by Korea’s Lotte Shopping and Keppel’s data centre unit — that’s headed for the Singapore bourse.

Overseas Union Enterprise (OUE) has started taking orders for its S$400 million REIT listing.

The IPO is priced at 80 Singapore cents a unit, and represents a 6.8 per cent yield for 2014.

Liu Jinshu, lead analyst at Voyage Research, said: “It’s quite a decent yield compared to other REITs. For example, the FTSE ST REIT Index has an average dividend yield of between 5 and 6 percent.

“From this point of view, I’d expect there to be takers, although the sentiment for REITs over the last one year has not exactly been the most exciting.”

OUE Bayfront is one of two assets that make up OUE Commercial REIT. The other is the Lippo Plaza property in Shanghai.

When listed, the REIT will be OUE’s second trust listing in just six months.

Analysts said as the REIT landscape becomes more crowded in Singapore, investors are likely to become more and more discerning.

They said REIT investors should look beyond IPO pricing and indicative yields. Instead, they should drill down into the specific assets in a REIT’s portfolio, considering factors such as tenant leases and occupancy rates.

According to OUE Commercial REIT’s preliminary prospectus, nine of the top 10 tenants for OUE Bayfront will see their leases expiring over the next one to three years. These top 10 tenants make up 76.4 per cent of the building’s gross rental income.

This could be a source of risk, as rental income may be affected if the leases are not renewed, or renewed at less favourable rates.

Still, some analysts do not see the REIT landscape getting over-crowded in Singapore.

They said there is a critical mass of investors in the REIT market, which is one of the world’s largest, with a market capitalisation of S$83 billion.

Jack Wang, a partner at Lexico Advisory, said: “Definitely, investors now will have more choices, and they can compare.

“In Singapore, maybe Suntec REIT and CapitaCommercial Trust will provide a very good barometer for them to use as a yardstick when it comes to evaluating and comparing different characteristics and yields of the property.”

Experts said another key consideration in REIT investing is potentially higher interest rates globally.

This could increase financing costs for REITs and reduce their dividend payout to investors.

Other considerations include the location of the REIT’s assets, and whether the REIT has a steady pipeline of new properties to acquire.

Source : Channel NewsAsia – 14 Jan 2014

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