The divestment consideration of $500 million translates to a 1.3% premium to the average of two independent valuations, but this also represents a $15 million loss against the asset’s book value.
Of the net cash proceeds of SGD498.5 million, SGD20 million will be distributed to unitholders evenly over the first two years following the completion of the divestment as a special distribution.
If the remaining amount is deployed to pare down debt, OUE REIT’s pro forma aggregate leverage as at March 31 would improve from 41.5% to 36.6%, strengthening the REIT’s balance sheet and improving its fiscal flexibility, says Lim in a June 25 note.
Meanwhile, OUE REIT’s FY2025 distribution per unit (DPU) would be 2.2% lower at 2.18 cents due to the loss of income from the asset, but 5.8% higher at 2.36 cents after including the special distribution of 0.18 cents.
As the buyer is a joint venture involving OUE Limited, unitholders’ approval is required at an extraordinary general meeting (EGM) to be convened in 3Q2026. Thereafter, the transaction is expected to be completed in 4Q2026.
Following the news, Lim is keeping her “buy” call and 41-cent target price on OUE REIT.
“The divestment is part of the REIT’s capital recycling strategy to exit from mature assets with lower yields and redeploy proceeds into high quality assets with better returns to close its net asset value (NAV) gap,” she writes.
See also: OUE Group completes $22 mil asset enhancement at Crowne Plaza Changi Airport
This is a “sizeable transaction”, adds Lim, with Crowne Plaza Changi Airport contributing to around 10% of OUE REIT’s FY2025 revenue and 9.3% of portfolio value.
“We are watchful of how the REIT eventually deploys the proceeds, as well as the timing and quality of any potential acquisitions,” says Lim.
OUE REIT had previously announced that it is exploring the divestment of One Raffles Place (ORP), and this remains ongoing. Inclusive of Crowne Plaza Changi Airport and ORP, OUE REIT’s portfolio is worth some $6.1 billion.
The remaining assets in OUE REIT’s portfolio are office assets OUE Bayfront and OUE Downtown Office, the hotel Hilton Singapore Orchard and its retail podium Mandarin Gallery.
The latest addition to OUE REIT’s portfolio is 180 George Street (also known as Salesforce Tower) in Sydney. OUE REIT acquired a 19.9% interest in the premium-grade commercial asset in February.
Units in OUE REIT closed 1.4% higher, or 0.5 cents up, at 36 cents on June 25. Its units are trading flat year to date.
