OUE C-Reit in $1.27b deal to divest 50% of OUE Bayfront to Allianz fund

OUE Bayfront was independently valued at $1.18 billion by Cushman & Wakefield as at end-2020. PHOTO: BUSINESS TIMES

SINGAPORE (THE BUSINESS TIMES) - The manager of OUE Commercial Real Estate Investment Trust (OUE C-Reit) has agreed to divest a 50 per cent stake in the Reit's OUE Bayfront property based on an agreed value of $1.27 billion, or $3,170 per square foot, to a special purpose vehicle (SPV) managed by Allianz Real Estate.

This comes after The Business Times in November 2020 reported both parties were in exclusive due diligence with a view to buying a partial stake in the building, which OUE C-Reit's manager later on confirmed but said there was no certainty any transaction would materialise at the time.

OUE Bayfront comprises an 18-storey Grade A office asset, a conserved tower building and an overhead pedestrian link bridge with retail units. It was independently valued at $1.18 billion by Cushman & Wakefield as at end-2020.

The $1.27 billion value commands a 7.6 per cent premium over this valuation and exceeds the property's purchase consideration of $1 billion by 26.1 per cent.

After taking into account the estimated divestment fee and other divestment-related expenses, OUE C-Reit is expecting to net about $262.6 million of proceeds.

In a late night filing on Monday, OUE C-Reit's manager said this will provide it the financial flexibility to pare down debt, undertake accretive acquisitions of higher-yielding assets or asset enhancement initiatives, and redeem outstanding convertible perpetual preferred units. It may also use the net proceeds to commence a distribution per unit accretive unit buy-back programme to enhance long-term returns to unitholders, or to distribute as capital gains.

Assuming the estimated net proceeds from the divestment are used to repay loans, the Reit's aggregate leverage is expected to improve from 40.3 per cent as at end-September 2020 to 33.6 per cent on a pro forma basis.

A limited liability partnership known as BPH Propco has been formed between the Reit and Allianz's SPV Acre Angsana, with DBS Trustee as trustee of the Reit. The OUE Bayfront property's sale will be conducted through BPH Propco, which OUE C-Reit and Allianz will each hold a 50 per cent interest in.

The Reit manager and OUE Commercial Property Management will be respectively appointed as asset manager and property manager to BPH Propco.

DBS Trustee has also agreed to guarantee a minimum net property income (NPI) of $50 million and $52.5 million for the first and second year, respectively, following completion of the divestment and subject to an aggregate cap of $6 million.

Based on the OUE Bayfront property's annualised NPI of $45.8 million for the nine months ended Sept 30, 2020 and the agreed value, the estimated net property yield is 3.6 per cent per annum.

Post completion of the divestment, the manager says OUE C-Reit will continue to be underpinned by the resilient office segment, which contributes 57.8 per cent to the Reit's total portfolio rental revenue on a pro forma basis. Singapore properties continue to anchor the portfolio, comprising about 90.4 per cent of total assets, it added.

"This acquisition presents us with a unique opportunity to add a marquee prime office asset into our portfolio. We are confident that the OUE Bayfront property, with its high-quality offering and strategic location, will continue to enjoy strong demand from occupiers seeking prime office space in Singapore," said Danny Phuan, Asia Pacific head of acquisitions for Allianz.

Allianz has separately announced the agreed transaction value for the 50 per cent interest in OUE Bayfront is $634 million subject to closing, which is expected to happen at end-February 2021.

The real estate company issued a press statement on Tuesday (Jan 19) confirming previous market speculations that the acquisition is on behalf of the National Pension Service of Korea, in addition to the Allianz group of companies.

JLL acted as adviser on the sale, said the real estate consultancy in a media statement on the same day. Its head of capital markets for Singapore, Lim Ting, sees the transaction as "indicative of deeper investor confidence in the long-term prospects for quality assets in the Singapore office market".

Units of OUE C-Reit were up by one cent or 2.6 per cent at 39.5 cents as at a 11.29am, after the announcement.

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