OUE Commercial Real Estate Investment Trust, the second trust Singapore developer OUE Ltd. has listed in the past six months, opened lower on its first day of trading amid concerns that the yield and credit rating are below those of its peers.
The units traded at 77 Singapore cents, 3.8 percent beneath the initial stock offering price of 80 Singapore cents apiece. They closed unchanged. The REIT raised S$346.4 million ($271 million), offering 208 million units to the public and selling an additional 225 million units to cornerstone investors.
The trust has a provisional rating of Ba1 from Moody’s Investors Service, one level under investment grade. The rating is in a range that’s speculative and subject to substantial credit risk, according to its prospectus. OUE Commercial plans to offer a dividend yield of 6.8 percent for this year with income support from OUE, while without the support, the yield is 5.56 percent, it said.
“The yield without income support isn’t that attractive,” said Vikrant Pandey, an analyst at UOB Kay Hian Pte in Singapore. “That coupled with a credit rating that is below investment grade is also affecting the sentiment.”
OUE Commercial will be backed by the OUE Bayfront office tower in downtown Singapore and the Lippo Plaza property in Shanghai, according to the prospectus.
OUE Hospitality Trust, which owns a hotel and mall in the city’s Orchard Road shopping district, raised S$600 million from an IPO in July last year. It closed unchanged at 87.5 Singapore cents. In the past six months, the stock has fallen 1.7 percent, compared with the 6.2 percent decline in the Singapore benchmark Straits Times Index.
OUE bought the U.S. Bank Tower in Los Angeles, California’s tallest building, for $367.5 million last year. It is controlled by Executive Chairman Stephen Riady, the son of Lippo Group founder Mochtar Riady. Indonesia-based Lippo Group’s businesses include real estate, financial services and food across Asia.