OUE Real Estate Investment Trust (Reit) is set to sell its entire stake in Lippo Realty, a real estate service provider that manages and operates an office building in Shanghai, to an unrelated entity for 1.9 billion yuan (S$357.4 million), said its manager in a bourse filing on Friday (Dec 20).
Both the seller and buyer came to an agreement that the 36-storey Grade A commercial building, known as Lippo Plaza, has a property value of 1.7 billion yuan, about 5 per cent below its independent valuation of 1.8 billion yuan.
Against the agreed property value, as well as Lippo Plaza’s net property income of 94.6 million yuan for the financial year ended Dec 31 last year, the estimated net property yield is 5.7 per cent per year, noted the filing.
After taking into account expenses related to the divestment and taxes, OUE Reit is expected to reap net proceeds of about S$318.2 million from the transaction.
The Reit manager believes that this will benefit OUE Reit’s unitholders as the move is in line with its strategy to optimise portfolio composition, strengthen income resilience, and bring about sustainable returns.
The proceeds will provide the manager with financial flexibility to pare down debt, undertake accretive acquisitions of higher-yielding assets or asset enhancement initiatives, redeem outstanding convertible perpetual preferred units, commence a buyback programme, and distribute them to unitholders, the filing said.
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Han Khim Siew, chief executive officer of the manager, said that Lippo Plaza is a non-core asset contributing only 6.6 per cent of OUE Reit’s total portfolio revenue as of September 2024.
The shorter leasehold tenures as well as the building’s age have started to impact its valuation and competitiveness, especially with the current supply overhang in the Shanghai market, said Han.
“The stewardship of Lippo Plaza has now been entrusted to a committed long-term investor attracted by the property’s very prime location,” he added.
“With no plans to further expand our footprint in China, this divestment offers an opportunity to monetise the asset and redeploy the proceeds towards more strategic uses.”
OUE Reit had acquired the property back in January 2014 for S$335.5 million. Lippo Realty owns a 91.2 per cent share of the strata ownership of the building.
Once the divestment is completed, all of OUE Reit’s assets would be located in Singapore. These comprise four commercial properties – OUE Bayfront, One Raffles Place, OUE Downtown, and Mandarin Gallery – as well as two hotels, namely Hilton Singapore Orchard and Crowne Plaza Changi Airport.
Units of OUE Reit fell 1.8 per cent or S$0.005 to close at S$0.27 on Friday.
