Archive for the ‘IPO’ Category

A Comparison between SPH REITs and OUE Hospitality Trust

My personal take on the comparison between SPH REITs and OUE Hospitality Trust. Enjoy.

With the potential interest rate increase as a background noise, market is somewhat uncertain compared to 2-3 months ago.

OUE, the sponsor has initially wanted to hold only 30% of the Trust but has now increased to holding 43% due to current market condition, whereas SPH is going to hold 70% (I believe no change from its initial intention). Also, for the book building process, SPH REITs ended at the high end of the indicative 85 to 90 cents whereas OUE HTrust is at 88 cents which is the lower end of the 88 – 90 cents range. Also, the cornerstone investors for SPH REITs are mostly institutional investors whereas for OUE HTusts, it is high net worth individuals.

If I have to choose between the two, despite the higher indicative yield of OUE at 7.4 plus percent versus SPH REITs yield of 5.7% (both FY2014) , it will have to be SPH, on the ground of safety – as shopping malls assets are more resilient to economy gyrations.

I have to add on that, in general, both IPOs are probably okay, and OUE HTrust is 'unfortunate' to be compared against SPH REITs and the timing is not perfect for both given the potential interest rate increase scenario. So, keeping a look out for looming interest rate increase, and selling one's REITs holding might be a prudent thing to do, if one wants to avoid potential capital loss.

The approach might be somewhat different for long term investors whose main investment strategy is to hold to a portfolio of dividend paying instruments.



Priced at $0.90, offering a yield of 5.79% base on 2014 projections.

Last day to apply IPO at ATM is on Next Monday (22/7) 12noon.

Listing is on 24th Jul (Wed) at 2pm.

My personal opinion:

While I believe that it is generally safe given brandname and reputation of SPH (which still owns 70% of the REIT after listing) and that it's a REIT, you may want to consider a stag or short term play if the profit meets your expectation and given the fact that the market is currently in a somewhat sideway mode.

Long Term Holding

Scenario A: Even if for long term holding, it may pays to be defensive and possibly try avoid allowing it to go below the purchase price (can consider picking it up later at a lower price if possible) – we all saw how REITs corrected when there were talks of potential interest rate hike. While I believe that interest rate issue has been factored in, it still pays to be caution.

Scenario B: Buy and hold as part of a long term dividend portfolio might work out just fine. Depending on individual beliefs and approach.

Good Luck!

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