OUE Commercial Real Estate Investment Trust Is Adding A Billion Dollar Property To Its Portfolio: What Does It Mean For Its Investors?

Yesterday evening, OUE Commercial Real Estate Investment Trust (SGX: TS0U), which is sponsored and managed by OUE Ltd (SGX: LJ3), announced a proposal to acquire a partial interest in the prime integrated commercial development One Raffles Place.

OUE Commercial REIT intends to do so through the purchase of a 75% to 83.3% interest in OUB Centre Limited from OUE Ltd. OUB Centre Limited is the registered owner of One Raffles Place with an 81.54% stake.

Currently, OUE Commercial REIT only has two commercial properties in its portfolio: OUE Bayfront in Singapore and Lippo Plaza in Shanghai, China. The addition of One Raffles Place into the REIT’s portfolio would help the REIT in terms of diversifying its income stream.

One Raffles Place is, as mentioned earlier, an integrated commercial development. It has two Grade-A office towers along with a retail podium and has a total gross floor area of 1.289 million square feet.

The purchase price that’s being bandied around at the moment is between S$1.034 billion and S$1.149 billion. This comes from the agreed-upon valuation of S$1.715 billion for OUB Centre Limited’s 81.54% stake in One Raffles Place:

  • A 75% interest in OUB Centre Limited would be valued at S$1.286 billion while a 83.3% interest will be S$1.429 billion instead.
  • The discrepancy between the value and purchase price is partly to take into account the repayment of any outstanding shareholder’s loan that’s likely to take place with the purchase.

What does this deal mean for unitholders of OUE Commercial REIT?

The deal would effectively double the portfolio size for OUE Commercial REIT from S$1.63 billion to S$3.37 billion as well as increase its total net lettable area by 873% from 825,000 sqft to 1.545 million sqft. That seems like a smart move in terms of growing the REIT’s economic value.

But, management has not disclosed any details on how the acquisition would be funded and that’s a very important factor in determining how good the deal is for OUE Commercial REIT’s unitholders. What’s known so far is that the REIT intends to utilise a “combination of debt and equity financing, including the proposed convertible perpetual preferred units (CPPU) Issue.”

Investors might want to keep an eye on how the REIT’s distributions per unit would change after the acquisition. At the end of the day, a sustainable increase in a REIT’s distribution per unit is what most unitholders should hope for.

OUE Commercial REIT would have to obtain approval from its unitholders for this acquisition to take place.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn’t own shares in any companies mentioned.