At the last done price of SGD0.705, Singapore-listed office landlord OUE Commercial REIT is currently trading at about 20% below book value. But does the discount represent a tantalizing proposition for value seekers?

OUE Commercial REIT announced on 5 May that it has recorded a DPU of 1.23 Singapore cents for its 1Q 2017, a fall of 6.7% from the 1.32 cents reported in the corresponding period of 2016.

However there were more positive signs in the rest of the metrics reported for the quarter.

The REIT reported a 4.4% year-on-year increase in gross revenue for the quarter which came in at SGD44.8 million (USD31.8 million) while net property income grew by 4.2% to SGD34.6 million.

The REIT’s aggregate portfolio occupancy across its three properties also improved by 1% to 95.8%, suggesting that a recovery may be in sight for Singapore-listed office REITs after several quarters of uncertainty.

The positive signs also seem to be in line with a May 2017 report by Savills Singapore on the country’s office sector, which suggest that rental decline for Grade A in the country’s Central Business District has slowed.

“During the first three months of this year, there was an increase in leasing enquiries for office space, especially for top-quality office”, said Savills Singapore in a research note.

“On the back of healthy take-up seen in these projects, as well as improved market sentiment, we observed that some landlords of prime of offices have mustered greater confidence and started to test out the market with higher asking rents”, the firm added.

Given these developments, it is understandable for investors to assume that the worst in the Singapore office market could be over soon and turn towards seemingly undervalued counters such as OUE Commercial REIT.

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