In Guha’s view, OUE REIT is “too cheap to ignore”. At its last-traded unit price of 29 cents, OUE REIT is the “most inexpensive Singapore-centric commercial S-REIT”, says the analyst in his July 15 report.
At present, the REIT trades at a yield of 7.5%, close to 1 standard deviation (s.d.) away from its historical mean of 6.9%. On a price-to-book (P/B) metric, OUE REIT offers a 57% discount versus a historical discount of 35%.
Relative to its S-REIT peers, including commercial REITs, OUE REIT offers the highest yield, steepest discount to book and the highest implied cap rate of 6.2%, notes Guha. The peer average for these metrics are a yield of 6.7%, discount to book of 30% and an implied cap rate of 4.6%.
To Guha, the REIT’s Singapore-focused portfolio and central business district (CBD) Grade A offices, master lease structure, as well as blue-chip tenants offer resilience, while its hotels should see higher revenue from continued growth in revenue per available room (RevPAR).
Occupancy for its Singapore CBD offices also remains high despite the slowdown in spot rent growth, which should further provide stability, Guha adds.
Other positive factors in Guha’s book, is the group’s increased proportion of unsecured borrowings and lowered financing spreads, as well as the REIT’s investment grade credit rating of BBB- by S&P last year. OUE REIT also has sustainable financing, which makes up 90% of its total debt.
For FY2024, FY2025 and FY2026, the analyst has forecast a distribution per unit (DPU) of 2 cents, 2.22 cents and 2.3 cents respectively. The estimate represents a compound annual growth rate (CAGR) of 2.7% from FY2023 to FY2026.
As at 11.17am, units in OUE REIT are trading 1 cent lower or 3.45% down at 28 cents.
