3 reasons why you should invest in OUE Commercial Trust

Ride the prime office sector rebound.

OUE Commercial Trust (OUE-CT) is a great investment pick right now, according to OCBC Investment Research, recommending a BUY rating on the stock due to three key reasons.

"First, we are constructive on the prime office outlook in Singapore, which makes up 69% of OUE-CT’s portfolio by asset value," said the research firm.

OCBC Investment Research noted that while Grade A rentals declined 13.7% over 3Q11-3Q13, the downtrend reversed in 4Q13 when rentals registered a 2.1% QoQ uptick and core CBD vacancy rate improved 167 bps to
4.8%. In addition, overall office demand remained firm; FY13 island-wide net absorption came in at a healthy 2.1m sq ft - significantly higher than the 10-year average of 1.6m sq ft.

"We forecast that limited supply and continued steady absorption will drive Grade A rentals up by 10%-20% over FY14-15. Contributions from OUE Bayfront, now boosted by income support, will likely be sustained at current levels or higher after the support arrangement ceases after FY17," said OCBC.

Secondly, OUE-CT’s market cap is currently the lowest in its peer group of office S-REITs.

Given three large ROFR assets in its potential acquisition pipeline, we see ample scope for meaningful growth ahead; large yield-accretive acquisitions in the future could result in DPU growth, higher trading liquidity as its market cap and assets increases.

The third and final investment catalyst for OUE-CT is that data suggets it is attractive relative value versus peers.

"Despite providing one of the largest exposures to the premium office space in Singapore (only second to Keppel REIT), OUE-CT offers a forward yield of 6.9% - the second highest in its peer group (average: 6.7%). Its price-to-book ratio of 0.76 is also lowest amongst peers," said OCBC Investment Research.