The trustee of OUE Commercial REIT (OUE C-REIT), DBS Trustee, has established a limited liability partnership with BPH Propco LLP and ACRE Angsana, a special purpose vehicle (SPV) managed by Allianz Real Estate Asia Pacific on behalf of National Pension Service of Korea (NPS) and Allianz group companies.
OUE C-REIT and Allianz Real Estate each holds a 50% interest in BPH LLP.
DBS Trustee, has, concurrently, entered into a sale and contribution agreement with BPH for the sale and contribution of the OUE Bayfront property to BPH LLP.
The OUE Bayfront property comprises OUE Bayfront, OUE Tower and OUE Link.
The agreed value of the property is $1.27 billion, or $3,170 psf, and represents a 26.1% premium over the purchase consideration of $1.01 billion.
SEE: What will OUE do with its asset sale proceeds?
The expected net proceeds from the divestment of the 50% interest comes up to approximately $262.6 million after taking into account the divestment-related fee and other expenses.
Based on OUE Bayfront property’s annualised net property income of $45.8 million for the nine months ended Sept 30, 2020, as well as the agreed value, the estimated net property yield is 3.6% per annum.
In addition, DBS Trustee, Allianz Real Estate and BPH LLP have entered into a deed of guarantee and undertaking.
Under the deed, DBS Trustee will guarantee that the net property income of the OUE Bayfront property will come up to at least $50.0 million and $52.5 million for the first and second years respectively following the completion of the divestment.
The net property income guarantee is subject to an aggregate cap of $6.0 million.
The manager of OUE C-REIT and OUE Commercial Property Management will be appointed as the asset manager and property manager to BPH LLIP respectively.
OUE C-REIT’s aggregate leverage is expected to improve from 40.3% as at Sept 30, 2020, to 33.6% on a pro forma basis, assuming the net proceeds from the divestment are used to repay loans.
Following the divestment, about 57.8% of OUE C-REIT’s portfolio is made up of the office segment.
SEE: REIT consolidation continues as OUE C-REIT proposes to acquire OUEHT for $1.49 bil; unitholders to suffer dilution again
“We are pleased to enter into this partnership with ARE which is an endorsement of the OUE Bayfront property’s high quality and value as a landmark asset in the Singapore CBD. The divestment is part of the manager’s active portfolio optimisation strategy, allowing OUE C-REIT to realise the value of capital appreciation and enhance long-term returns for OUE C-REIT’s unitholders,” says Tan Shu Lin, CEO of the manager.
“In retaining a 50% stake in a premium Grade A office building with a blue-chip tenant profile, OUE C-REIT will maintain significant exposure to the Singapore office market, which has demonstrated resilience amidst a challenging operating landscape. In addition, the divestment provides OUE C-REIT the opportunity to optimise its capital structure and increase financial flexibility,” she adds.
“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,” says Danny Phuan, Asia Pacific Head of Acquisitions for Allianz Real Estate.
Units in OUE C-REIT closed 0.5 cent lower or 1.3% down at 38.5 cents on Jan 18.