OUE C-Reit' s manager said late on Friday that it has not entered any exclusivity arrangement in relation to a sale of any of OUE C-Reit' s assets, nor is there any certainty that any such transaction will materialise.

 

This is in response to an article published on Friday in The Business Times titled " Will OUE Commercial Reit sell some of its assets?"

 

The Reit manager said that it explores potential acquisitions and divestment opportunities as part of its proactive asset management strategy with a view to maximising returns to unitholders.

 

In addition, the manager from time to time receives unsolicited expressions of interests in respect of the assets owned by OUE C-Reit, it said. It added that will evaluate all such proposals carefully taking into account the best interests of all unitholders.

 

While OUE Limited is the sponsor and controlling unitholder of OUE C-Reit and wholly owns the manager, OUE C-Reit is separately listed and is managed by the manager, it said in a bourse filing.

 

" The manager, led by its board of directors which comprises a majority of independent directors, is responsible for managing the assets of OUE C-Reit in the best interests of all unitholders including assessing and, if thought fit, approving any potential acquisition or divestment," it said.

The Riady family behind sponsor OUE, it seems, is open to receiving offers for just about any of the Reit' s assets - before deciding just what to divest

 

OUE this week completed the sale of the landmark US Bank Tower in Los Angeles for US$430 million, or at two-thirds of its US$650 million valuation as at Dec 31, 2019.

 

Among other things, the disposal will allow the group to substantially boost its cash reserves and improve its net gearing ratio by paring down existing debts. What else could be on the cards for OUE?

 

Talk on the grapevine is that asset sales action may come from the group' s sponsored real estate investment trust OUE Commercial Reit - in which OUE Group has a 47.8 per cent stake (as at June 30, 2020).

 

The Riady family behind OUE, it seems, is open to receiving offers for just about any of the Reit' s assets - especially OUE Downtown Office in Shenton Way, which is on land with a relatively short balance leasehold tenure of 46 years - before it decides just what to divest.

 

BT understands the group is also willing to part with the 563-room hotel Crowne Plaza Changi Airport, which was valued at S$883,000 per key at end-2019.

 

Potential buyers with preferred profiles have also been approached discreetly for the Reit' s 67.95 per cent effective interest in One Raffles Place - an office and retail asset in the heart of Singapore' s traditional financial district.

 

Even the jewel in the crown - the OUE Bayfront office development - may be available for sale, at least for a partial stake of, say, 40 per cent. The trust fully owns this prime Grade A office asset standing between Raffles Place and the Marina Bay new downtown.

 

Talk of the potential divestments comes just a year after the Reit' s merger with OUE Hospitality Trust, resulting in combined assets of S$6.8 billion. The merged entity has seven assets - of which three are from the hospitality trust.

 

When the merger was announced, the managers of the two Reits had said that the enlarged entity will provide " enhanced portfolio diversification and resilience" .

 

Divesting assets would seem like a change in plans. Could this have been sparked by proactive agents

 

and/or unsolicited interest from potential buyers?

 

More likely, it reflects challenges from the Covid-19 pandemic, especially for hotel assets. Even demand for office space is not expected to be unscathed from corporate downsizing and work from home taking root during the pandemic.

 

Aggregate leverage

 

Other factors may also be at play.

 

OUE Commercial Reit' s aggregate leverage of 40.1 per cent as at end-June 2020 is higher than some S-Reits though still below the 50 per cent regulatory limit.

 

Its sponsor' s net gearing, however, is on the high side. According to an OCBC Investment Research report dated Aug 7 this year, OUE' s net gearing stood at 86.2 per cent as at Dec 31, 2019 but is projected to fall to 73.9 per cent by the end of FY2020.

 

If OUE Commercial Reit were to sell some assets, it could use the proceeds to repay some of its borrowings and reduce aggregate leverage.

 

Beyond that, there is the possibility of making capital distributions from divestment gains to all unit holders - including its sponsor, OUE.

 

OUE could use the monies to cut its own debt and build a stronger cushion against the vagaries of the economic slowdown.

 

One could extend the picture to the Riady family' s business empire in Indonesia, where Lippo Karawaci, the family' s listed property arm, is still in the process of restructuring - in the aftermath of the cash squeeze triggered by its ambitious US$18 billion Meikarta township development in Bekasi, West Java.

 

Furthermore, with the Covid-19 pandemic having devastated the Indonesian property market, Lippo Karawaci' s ability to repay loans has been significantly hampered.

 

Capital distributions that OUE could potentially receive from OUE Commercial Reit' s divestment gains may in turn be channelled to OUE' s shareholders, by way of, say, special dividends or even a capital reduction. The Riady family, as the ultimate controlling shareholders of OUE, will have the option to funnel the money to Lippo Karawaci.

 

Now let' s take a closer look at some of OUE Commercial Reit' s assets to see what' s on offer.

 

Its biggest asset is One Raffles Place, for which a global property consulting group is understood to have discreetly sussed out interest of potential buyers recently.

 

Market watchers believe the indicative pricing may be in the high-S$2,000-psf range.

 

The asset comprises two office towers - 62 storeys and 38 storeys - and a retail podium with a total net lettable area (NLA) of about 860,000 sq ft.

 

The development is on four land parcels with a mix of tenures - one plot with 841-year leasehold tenure (starting November 1985) and three plots with 99-year leasehold tenures (two starting from May 1983 and the third from November 1985).

 

OUE Commercial Reit has an indirect interest of 83.33 per cent in OUB Centre Limited (OUBC), which in turn has 81.54 per cent interest in One Raffles Place - resulting in the Reit having an effective 67.95 per cent interest in the property.

 

Assuming a guide price of S$2,950 psf, OUE Commercial Reit' s effective interest would amount to S$1.72 billion. OUBC' s interest in the property was valued at the end of last year at S$2,667 psf.

 

Talk in the market is that following an exercise conducted by the property consulting group to find a buyer for OUE Commercial Reit' s stake in One Raffles Place, some parties are being shortlisted. Potential buyers, however, have expressed interest to take the entire property, and not just the Reit' s stake.

 

The other owners of the development include United Overseas Bank, UOL Group and Khattar Holdings and efforts are probably underway to see if they would like to divest their interests in the asset alongside the Reit.

 

Yield play

 

Assuming a price of S$2,950 psf, full interest in the asset would amount to S$2.53 billion. The building' s current gross floor area (GFA) of about 1.29 million sq ft is already slightly over 17 times the site area. This exceeds the 15.0 gross plot ratio for the commercial-zoned site under the Urban Redevelopment Authority' s Master Plan 2019. This site also does not come under the URA' s CBD Incentive Scheme. In short, there is not much redevelopment potential for One Raffles Place.

 

Nevertheless, given its prime location next to Raffles Place MRT Station, the property may appeal to core investors looking at yield play, such as insurance companies, pension funds, sovereign wealth funds and core funds managed by private equity fund managers. The property is less likely to draw a buyer eyeing significant value-add potential by refurbishing the asset, or even redeveloping it.

 

Typical office floor-plates at One Raffles Place are relatively small at about 9,000 sq ft for Tower 1 (completed in 1988) and 11,000 sq ft at Tower 2 (completed in 2012). Major tenants in the development include flexible space operators Regus (in Tower 2) and Spaces and Virgin Active (both in the retail podium).

 

Potential buyers looking for a more modern office asset may prefer OUE Bayfront in Collyer Quay. It has larger floor plates of around 26,000-30,000 sq ft and stands on a site that still has a balance tenure of 86 years. Its committed office occupancy as at June 30 was 100 per cent.

 

The development' s NLA of 399,824 sq ft comprises predominantly offices and a 5 per cent retail component. Bank of America Merrill Lynch is an anchor tenant. OUE Bayfront was valued at S$2,954 psf or S$1.18 billion at the end of last year.

 

The trust' s asking price could be at least S$3,300 psf, suggest observers.

 

The other assets in the Reit' s portfolio include Lippo Plaza in Shanghai, Mandarin Gallery and the Mandarin Orchard Singapore hotel in Orchard Road. The hotel will be rebranded to Hilton after a revamp.

 

Beyond the impact on the Riady family, if OUE Commercial Reit does sell even a couple of its assets, it would help liven up the current moribund market for big-ticket property transactions in Singapore.

 

OUE Commercial Real Estate Investment Trust (C-Reit) on Thursday posted a distribution per unit (DPU) of one Singapore cent for the half-year ended June 30, 40.5 per cent lower than a year ago.

 

It said it had retained S$13.8 million of distribution to " preserve financial flexibility" amid the Covid-19 pandemic. 

 

OUE C-Reit has a semi-annual distribution policy unitholders can expect the distributions to be paid on Sept 11. 

 

Revenue for the second quarter had risen 23.9 per cent on the year to S$64.3 million, resulting in a 32.4 per cent year-on-year (y-o-y) increase in H1 revenue to S$142 million. 

 

Net property income for Q2 increased 23.7 per cent on the year to S$50.4 million, due to the contribution from the merger with OUE Hospitality Trust last year, although this was partially offset by rental rebates to tenants.

 

For H1, net property income thus rose 33.4 per cent y-o-y to S$112.5 million. 

 

However, the Reit' s manager said that while the Covid-19 situation has largely stabilised in Singapore and China for now, it will continue to monitor the situation, and is prepared to introduce further initiatives to support OUE C-Reit&rsquo s tenants as required.

 

It also noted " protracted containment measures and weaker global conditions" . The manager has thus opted to retain S$13.8 million of distributions to " preserve financial flexibility" .

 

In Q2, OUE C-Reit' s hospitality segment - contributed by the merger with OUE Hospitality Trust - recorded S$16.9 million in revenue. Revenue per available room (RevPAR) for the segment was 71.7 per cent lower y-o-y in Q2 at S$55, due to travel restrictions arising from the pandemic. 

 

In the commercial segment, revenue declined 8.6 per cent on the year to S$47.4 million. The Reit has committed about S$13.8 million of rental rebates to date, excluding an estimated S$19.9 million of support from the Singapore government, comprising property tax rebates and mandated share of relief for small and medium-sized enterprises. 

 

Committed occupancy for the commercial segment declined 2.7 percentage points (ppt) quarter on quarter to 91.6 per cent as at June 30.

 

The Singapore portfolio' s committed office occupancy slid 2 ppt quarter on quarter to 93.7 per cent in Q2, as leasing momentum was dampened by the weak economic outlook and the suspension of leasing activities during the " circuit-breaker" period, the Reit said.

 

The Singapore office properties have continued to achieve positive office rental reversions of 6.8 per cent to 14.8 per cent during Q2, however.

American poet Maya Angelou once famously said, " Make a mark on the world that can' t be erased" - and banking and finance veteran Tan Shu Lin aspires to do just that.

 

" I would like to be a successful leader who inspires people to reach their fullest potential," says the chief executive of the manager of OUE Commercial Real Estate Investment Trust (OUE C-Reit).

 

" At the end of the day, it' s not only about growing the Reit in terms of assets and cash flows, but also the intangibles, such as grooming talent in the team, and fostering a strong, positive corporate culture."

 

The Bachelor of Arts graduate with first-class honours in economics from the University of Portsmouth began her career in various financial institutions.

 

In 2001, she entered property via Ascendas Funds Management, the manager of Ascendas Real Estate Investment Trust (A-Reit) and the second Reit on Singapore Exchange when it listed in 2002.

 

" That brought me into a corporate environment where real estate, financial services and financial markets converged," recalled Ms Tan, who spent six years at A-Reit, rising to head of capital markets.

 

After a stint at UBS, she rejoined A-Reit in 2008 and became responsible for strategic direction, as well as operational and capital structure.

 

Fast forward to October 2013, and her appointment to helm the manager of OUE C-Reit meant Ms Tan, 47, had come full circle.

 

" Just like in any corporate set-up, it' s a marathon, not a sprint," she said. " We start with an idea, and develop it to fruition. In everything that you do, you keep the long-term perspective in mind."

 

Ms Tan says the past six years have been the most satisfying of her career. " That' s when I oversaw the fourfold expansion of OUE C-Reit' s assets, growing it from $1.6 billion to $6.8 billion, following several corporate actions, including a merger with OUE Hospitality Trust."

 

Completing the merger - spanning nine months - was a high point, but it proved to be a long, complicated journey.

 

LONG-TERM PERSPECTIVE

 

Just like in any corporate set-up, it' s a marathon, not a sprint. We start with an idea, and develop it to fruition. In everything that you do, you keep the long-term perspective in mind.

 

MS TAN SHU LIN, on how her appointment as chief executive of the manager of OUE C-Reit means she has come full circle.

The merger proposal was a bold, unprecedented move. " Because it involved two different asset classes, there were a myriad of questions over whether we could carry it off and how investors would react," Ms Tan notes.

 

" On many occasions, there were no prior examples for us to fall back on. It all boiled down to just soldiering on to try to make it happen."

 

That is all now in the rear-view mirror. " We' re really savouring the fruits of our labour, and the benefits are obvious.

 

" We have a much larger market capitalisation, increased trading liquidity, higher visibility on investors' radar, and more participation during our roadshows."

 

The Reit' s increased size makes it better able to access capital, allowing it to undertake larger transactions and renovations.

 

Following its merger with OUE Hospitality Trust, the Reit now owns seven properties across the commercial and hospitality segments in Singapore and Shanghai, comprising about 2.2 million sq ft of prime office and retail space, as well as 1,640 upscale hotel rooms.

 

Assets here include the Mandarin Gallery mall in Orchard Road, the Mandarin Orchard Singapore hotel, One Raffles Place, OUE Bayfront and OUE Downtown Office.

 

In Shanghai, it owns Lippo Plaza.

 

With the future of land use focusing on mixed-use projects, a portfolio that has exposure to more than one property segment offers an edge. " One sector can mitigate the downturn from another, as we have seen with Covid-19," Ms Tan notes.

 

While the supply of new Grade A office space remains limited in the medium term, both occupancy and office rents are expected to take a hit, given the economic climate.

 

The 43 per cent year-on-year slump in international visitor arrivals in the March quarter prompted OUE C-Reit to implement cost-containment measures and seek alternative sources of demand.

 

These include guests on self-isolation stays, the front-line healthcare workforce, as well as workers affected by border shutdowns.

 

The minimum rent component of $67.5 million a year under the master lease arrangements of its hotels, offers protection, while government assistance such as wage and tax reliefs provide an added buffer.

 

" Covid-19 has impacted everyone. But the question is how do you use the downtime, and (how) to future-proof yourself?" Ms Tan says.

 

OUE C-Reit plans to rebrand Mandarin Orchard Singapore as Hilton Singapore Orchard, with new income-generating spaces.

 

" The domestic hotel segment will likely remain weak until the first half of next year. This makes it ideal for us to undertake asset enhancement initiatives... so as to catch the return wave in 2022."

 

In China, the Reit will focus on retaining tenants and keeping occupancy rates stable.

 

" Since the end of April, after the Chinese economy and businesses restarted, occupancy levels have hovered above 80 per cent," Ms Tan adds.

 

While the trust is focused on managing the fallout from Covid-19 in the near term, it is also keeping an eye on medium-to longer-term growth targets.

 

Office assets will still be OUE C-Reit' s mainstay as this defensive segment of the real estate market offers more resilient cash flow than hospitality or retail.

 

But local opportunities remain limited, Ms Tan admits. " Most Grade A offices in Singapore are already owned by other Reits or in institutional hands - that' s why we need to spread our wings abroad."

OUE Commercial Real Estate Investment Trust (OUE C-Reit) has priced an offering of S$100 million of 4 per cent notes due 2025, to be guaranteed by Reit trustee DBS Trustee.

 

Net proceeds from the issuance will be used to refinance Reit borrowings, the manager said.

 

OCBC and Standard Chartered were named joint lead managers and bookrunners for the notes offering, which will be issued under OUE C-Reit&rsquo s S$2 billion multi-currency debt scheme, the manager added in a bourse filing on Monday night.

 

The notes will mature on June 24, 2025, with the interest to be paid semi-annually, although the issuer can redeem them all on any interest payment date, among other redemption scenarios.

 

They constitute direct, unconditional, unsubordinated and unsecured obligations of the issuer and will rank pari passu with all of its other unsecured obligations, besides the subordinated obligations and priorities created by law.

https://www.businesstimes.com.sg/companies-markets/oue-c-reit-prices-s100-million-offering-of-4-notes-due-2025