Fundamental Look At OUE Commercial REIT [Is It Worth Investing In?]

Best Viewed On Desktop (As of June 2023 )

In this article, we'll be conducting a fundamental analysis of OUE Commercial REIT and its suitability to achieve the following investment objective: To deliver a stable dividend yield of 5% to 6% per year while having a high degree of capital preservation ability.

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1. Summary of Analysis

Personal Opinion on:

Business Model: OUE Commercial REIT is a diversified REIT that holds property across the office, hospitality and retail space. While the group has posted positive top and bottom line growth, the management had achieved this by significantly diluting the units which had resulted in poor relative performances for investors, thereby making it a badly managed REIT.

General Outlook: Given the current economic headwinds - higher interest rate environment, slowing global economic growth and challenges - I believe that at best, OUE Commercial REIT would be able to maintain its top-line revenue but bottom-line profit will be badly affected mainly as a result of borrowing cost - especially when their borrowing cost is higher than their comparative peers.

Valuation & Expected Return: As the REIT has failed the first filter, no further analysis is conducted to deduce the intrinsic value of the REIT.

What My Actions Will Be: I have placed OUE Commercial REIT into the “Not Interested” category and would probably not revisit it in the near future. That said, should the management address the impact of the dilution effect, I think it might be worth revisiting it. But as of date, more data is required to draw any conclusion and I would probably give it another look 3 to 4 years down the road.

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2. Personal Opinion

Here are 3 reasons why OUE Commercial REIT did not make the cut for my consideration.

1) Dilution impact from 2015 to 2019 essentially decimated the dividend issued per unit and the net asset value of OUE Commercial REITs. This shows signs of incompetent acquisition whereby the acquired properties ended up diluting the distribution per unit which is counterintuitive.

2) Weakening net total return for distribution since 2020. (Probably due to the hospitality sector but I did not bother to look into it)

3) Decent dividend yield (~6% per year) but destructive capital losses (-50% since listing) due to dilution impact.

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Disclaimer:

This article is meant to be the opinion of the author

This article is for information purposes only

This article should not be seen as financial advice

This advertisement has not been reviewed by the Monetary Authority of Singapore