OUE Commercial REIT may Sell even More Assets

SINGAPORE – Earlier this week, The Overseas Union Enterprise (OUE) finally sold off the landmark US Bank Tower in the city of Los Angeles. It was seen off at a price of US$430 million, a price far below the market value of the property in the near past.

The property was first put on the market in January 2019 without an indicative price. But experts estimated that the value of the property at that time could fetch over US$700 million based on the transaction history in the downtown area.

As at December 2019, the Tower was valued at a price of US$650 million. The sale price translate to a discounted price of approximately 34% off its previous valuation price.

It may not have come off as a fair deal to some, but the REIT made the decision based on what they had thought best for business, especially in a Covid-19-wracked world of a major landslide in the market value of properties. Particularly due to the present state of events, the sale becomes a major way to skyrocket the ‘pocket value’ of OUE Commercial Reit, fortifying its cash reserve.

Market predictors may posit differently on how shrewd it is to sell off properties in such a time. However, there is no denying that the REIT stands to gain a thing or two given that its frontline game players have all business implications on check. By selling off the landmark US Bank Tower, debts can be paid off and cash can be reserved for future investment options.

The OUE, run by the Riady family, appears to be willing to respond receptively to individuals and firms alike who indicate interests in their properties or are intending to do so. The assets, mostly garnered through Real Estate Investment Trusts, may be sold off to potential investors who are able to seal off the deals. These assets include the OUE Downtown twin office tower located on Shenton Way, One Raffles Place where it owns 67.95 percent effective interest, OUE Bayfront, a grade A office building with a waterfront view, and some others that may not be on any lists as yet.

Some of these assets are in Singapore’s business district and are Grade A office spaces. Among several other possibilities and considerations, OUE commercial is sure to rake in millions or billions of dollars if all or many of the alleged asset deals pull through.

Recently, in June 30 of 2020, it was reported that the group owned a 47.8 percent monetary stake on its Real Estate Investment Trust. But with the sale of assets, the group’s cash appears to be more on the incoming route than it is on the outgoing at the moment.

The need to dispose some properties has now risen only a year after the OUE Commercial Reit’s business pairing with OUE Hospitality Trust. The synergy amounted to them co-owning seven (7) properties, with three (3) of them belonging to the latter. Combined, the assets equaled S$6.8 billion. The tie was intended to strengthen the duo’s business presence in the country while maintaining mutual respect and understanding.

At the moment, reports surrounding the group’s possible sale of more properties may be considered speculations. But what is certain, the real estate sector is a huge sufferer from Covid-19 and Post Covid-19 impacts. Hotel and office properties have been hit hard by the change in the normalcy of the globe’s approach to life. This is not to imply that the Pandemic has hit hardest in this manner, but to show how much its impact on individuals, governments and businesses all over the world has influenced perceptions on ‘public properties,’ especially as it lasts.

One Raffles Place is OUE Commercial Reit’s most valued property, and several firms and companies are allegedly making offers for it and this comes off as no surprise. It has been predicted by the real estate sector’s watchmen in Asia Pacific that its indicative price could be way above S$2,000 Per square foot. Having a total NLA of around 860,000 Square Feet, the property is made up of a 62-storey and a 38-storey office towers and a retail outlet. The REIT has an interest of 83.33 percent with OUB Centre Limited (OUBC). While OUBC has an 81.54 percent interest in One Raffles Place.

As stated already, numerous firms are indicating unwavering interest in securing a deal for One Raffles Place. However, beyond paying off OUE Commercial’s stake, these groups are actually after buying the property in full. The United Overseas Bank, Khattar Holdings, and UOL Group are among the other owners of the property and such deal can only pull through if they, like the Reit, decide to receive cash at the expense of their rights to the property.

Some of the other properties with stakes belonging to the group are Shanghai’s Lippo Plaza, Mandarin Gallery, and the Mandarin Orchard Singapore hotel located at Orchard Road. And there is no debating how much the new approach to work has affected Reits, in a long list of others.

“We expect that the recessionary conditions will soften leasing demand in major central business districts across Asia Pacific,” says the Director at S&P Global Ratings, Esther Liu. “We also believe the ‘working-from-home’ measures may lead to a shift in longer term demand, as they present companies with the opportunity to cut space requirements.” Ken Foong, equity analyst at Morningstar also says, “Investors should take a long-term view on office REITs. There will be more immediate pressure on operations and cost for companies.”

It is true that these events and other potential events will have a direct implication on business for the Riady family and their group. But even more, the company selling off their properties or withdrawing their stakes for newer investors and diversification is sure to make the market boom and contribute to the enlivenment of transactions in Singapore.