The acquisition will be funded through a mix of debt and proceeds from the earlier divestment of Lippo Plaza Shanghai, with gearing expected to increase to around 40.2%. The passing yield is around 5.8% and DPU accretion is 0.9% on a pro forma basis.
The asset is a recently completed freehold, 55-storey premium office tower in Circular Quay with near-full occupancy of 99.2% and a long WALE of 5.5 years by income (6.0 years by NLA), supported by a high-quality tenant base including global technology and professional services firms.
"The acquisition marks the start of the next phase of OUE REIT’s growth strategy, reflecting a shift toward higher-quality, longer-duration assets," says Foo in her Feb 25 note.
"It represents the REIT’s entry into Sydney’s core CBD office market, where conditions are showing signs of stabilisation and structural flight-to-quality demand continues to favour best-in-class, newly built, ESG-compliant buildings," she adds.
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Foo notes that the pricing, at 5.8% passing yield, appears broadly in line with recent prime transactions, with Knight Frank’s Feb-26 report indicating core prime yields at around 5.7%.
With this initial 19.9% stake, OUE REIT, says Foo, has gained a "strategic foothold" with the potential to raise its stake over time.
More broadly, the deal supports active portfolio reconstitution by redeploying capital from China and potentially mature assets such as One Raffles Place, which the REIT has confirmed it is looking to sell.
"While earnings accretion is modest, it will help stabilise cash flows and partially fill the earnings gap following the divestment of Lippo Plaza Shanghai," says Foo.
