Ready For More REITs? OUE Certainly Thinks So

Ser Jing - Ready for a New REIT-on-the-block, OUE Certainly Thinks So (pic) Overseas Union Enterprises Limited (SGX: LJ3) announced yesterday evening that it is exploring the listing of a commercial real estate investment trust (REIT) with an initial property portfolio consisting of OUE Bayfront which as its name suggests, is owned by OUE.

The property’s an 18-storey office building located at 50 Collyer Quay which also consists of an ancillary tower building that has a food & beverage outlet and link bridge with retail shops.

In addition, commercial properties owned by Lippo China Resources Limited, a Hong Kong-listed company, are also being considered for purchase by the REIT upon its listing.

So far, that’s all there is to know about the new REIT with other details, such as the size of the offering and the timeframe for the listing yet to be finalised.

OUE, a diversified real estate owner, developer and operator, had just spun-off two of its hospitality properties – the Mandarin Orchard Hotel and Mandarin Gallery – into OUE Hospitality Trust (SGX: SK7) less than two months ago.

REITs, which can be represented as a group by the FTSE Straits Times Real Estate Investment Trust Index (SGX: FSTAS8670), has been one of the more unpopular class of shares in the market this year.

The FTSE ST REIT Index has declined by 6.5% to its current level of around 739 points since the start of the year. This is in contrast to the Straits Times Index’s (SGX: ^STI) slight 0.2% slide in the same time.

But despite the general slight-bearishness on REITs, OUE certainly still sees some attractiveness in the market’s appetite for these securities, judging from its listing-intentions.

OUE’s recent spin-off of its hospitality properties helped unlock shareholder value and strengthened its balance sheet. When OUE sold the properties to OUE H-Trust, it received S$1.36b in cash in which more than half had likely gone toward paying down the company’s existing debts.

Lowering of OUE’s debts would help decrease some of the financial risks it faced, given that it held a total of S$2.645b in debt and only S$147m in cash as of 30 June 2013.

In addition, OUE would still be able to participate in the disposed-properties’ growth through its ownership of 47.9% of OUE Hospitality Trust’s units as of 25 July 2013.

There are still many unknowns with OUE’s latest proposal for a commercial REIT but investors in the company can only place good faith in management’s ability to do shareholders justice given its recent track record with the OUE Hospitality Trust spin-off which help strengthened the company’s finances and benefitted shareholders.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.