OUE Commercial REIT in Cao Cao chained ships
On 24 August 2022, Singapore announced further relaxation of COVID-19 measures. Effective 29 August 2022, non-fully vaccinated travellers will be allowed to enter Singapore without applying for approval. In addition, wearing of mask is optional except on public transport and in healthcare facilities. These relaxations should further expedite the recovery of the travel-related sector, thereby benefitting S-REITs like OUE Commercial REIT.
Despite the positive developments, it is not going to be smooth sailing for OUE Commercial REIT as the operating environment has turned significantly dark. Obviously, the market is still reeling from the fallout arising from Russia invasion of Ukraine. Supply chain has been disrupted and inflation rates rocketed in many countries. Against this backdrop, US Federal Reserves has raised interest rates four times, bringing federal fund rate to between 2.25% and 2.5%.
A member of SG Wealth Builder has requested for a stock analysis of OUE Commercial REIT and sought my opinion on the management team’s competency. Year-to-date, the unit price has tanked by about 14.8% (at the point of writing). In terms of unit price performances, OUE Commercial REIT is easily one of the worst among the commercial S-REITs. What could be the factor for the bearish form?
Lippo Group has a controlling stake amounting to 65% in OUE through its web of subsidiaries (OUE is the Sponsor of the S-REIT). The Riady family owns the powerful Lippo Group, a well-known Indonesian conglomerate with diversified businesses in shopping malls, banks and real estate in Indonesia.
If investors look back, the capitulation of OUE Commercial REIT unit price started in January 2018. The bearish sentiment in 2018 could be attributed to investors’ concern on OUE’s link to the Lippo Group. Back then, troubles began to brew when Lippo Karawaci embarked on the massive Meikarta real estate development in Indonesia. Costing USD21 billion, this is the largest project that the Riady family has taken so far.
The required funding is colossus. As such, there were concerns among investors on the conglomerate’s cash flow. Apparently, the bearish sentiments spilled over to a number of SGX stocks linked to the Lippo Group – OUE, OUE Commercial REIT, First REIT, Lippo Malls Indonesia Retail Trust (LMIRT) and OUE Lippo Healthcare. Interestingly, these stocks that are linked to the Lippo Group are all real estate assets. They form some sort of fortress for the Lippo Group, enabling the Group to defend and attack together against business threats. In this context, how will OUE Commercial REIT unit price unravel under this “chained fortress”?
Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. Furthermore, I am not vested and have never invested in this counter before. Whether OUE Commercial REIT will surge or collapse has no impact on me. Thus, this article is not meant to induce readers to make any form of investment decisions.
OUE Commercial REIT in Battle of Red Cliff?
In the Romance of the Three Kingdoms, the Battle of Red Cliff was a decisive war that led to the formation of the Three Kingdoms during the Han Dynasty. In that saga, Cao Cao chained his ships in a bid to reduce sea sickness among his naval troops. However, this strategy backfired literally as Sun Quan troops blazed Cao Cao’s ships with fire attacks.
In my view, the Lippo Group is using [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]
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