Thursday, August 14, 2014

[SGX Portfolio] Buy: OUE Comm REIT

I just entered a position with OUE Commerical REIT.

It is currently trading at roughly 24% below it's NAV, I quite like that. Dividends look set to be between 6-7% depending on support.

However, it also has very high gearing of 39.5%. But, after reading the REIT book by Ralph Block, I find that 40% is right at the edge of coming out of the conservative range. The other downside is that the REIT only has 2 assets to its name. Future external growth will require funds, and if they are maxed out at just under 40% gearing, there is no other way around it other than to raise equity. This REIT is just lacking size and scale. If it can manage to comfortably add in 3-5 more big quality assets under it's name, I would be quite reassured with them.

On the plus side, of all the REITs, I feel that OUE Comm REIT has the highest upside potential (other than Fortune HK REIT) based on the NAV discount alone. Looking at unlevered yield, I find it quite attractive as well.

Even though nothing much has changed with OUE since I've seen it months ago, I've decided that I should not wait to act when I see a good opportunity. In a few years from now, whether I entered my position at $0.795 or $0.805, it is not going to make much of a difference. As long as the fundamental thesis is there and the price is right, nitpicking for a few cents only optimizes the entry, but at the risk of missing an opportunity. I have decided that I rather not miss the opportunity.

Other than OUE C-REIT, there are two other REITs that look very attractive to me based on the same style of analysis (NAV discount and high unlevered yields), and they are Saizen REIT and Mapletree GCC Trust. I have a position with Saizen and it has so far been treating me well. I am holding off to enter in a position with Mapletree GCC for now.

I will just hold onto to OUE C-REIT and collect income from it while waiting for time to pass. My expectations is for this REIT is acquire and manage more assets, and I would be willing to fork out extra cash if the incoming asset is of good quality. If not, I would likely just sell out into the hype of acquisition and hopefully by then, dividends that I have received over the time holding it would turn this investment net positive.

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