OUE Commercial REIT plans to acquire the office components of OUE Downtown in Singapore’s central business district from OUE’s wholly owned Alkas Realty for an aggregate purchase price of S$908.0 million, the REIT’s manager said in a statement dated Monday.
The proposed acquisition is expected to be partially funded by a renounceable rights issue of 1.288 million new units, which is expected to raise gross proceeds of around S$587.5 million, with the rest of the deal funded with debt, it said in the statement, which was filed to SGX just after midnight on Tuesday.
Eligible unitholders will be entitled to subscribe for 83 new units for every 100 units held as of the books closuer data at S$0.456 per rights unit, it said. The pricing is at a 31.4 percent discount to the S$0.665 per unit closing price for OUE Commercial REIT on 10 September, it said.
Tan Shu Lin, CEO of OUE Commercial REIT’s manager, said the acquisition would increase the REIT’s exposure to a rising Singapore office market at a “very attractive” pricing.
She added that the sponsor, OUE, has given a firm commitment to participate in the rights issue and act as a sub-underwriter for the rights issue to be underwritten by the banks. OUE holds around 55.9 percent of the units and will fully subscribe, it said.
Including other costs, such as stamp duty and financing costs, the total cost is expected to be around S$955.9 million, it said.
OUE Downtown is a mixed-use development with two high-rise towers, which includes a 50-storey building, OUE Downtown 1, and a 37-storey building, called OUE Downtown 2, as well as a retail podium and a multi-storey carpark, it said.
The 35th to 46th storey of OUE Downtown 1 and the 7th to 34th storey of OUE Downtown 2 are Grade-A office space with a combined net lettable area of 529,981 square feet, it said. They have a committed occupancy of 95.1 percent as of end-June, with a tenant base including financial, information and technology, media and telecom companies and multi-national corporations, it said.
The properties’ current passing rent as of June was around S$7.00 per square foot per month, compared with the first quarter market rent of S$8.43 per square foot per month for the area, according to data from Colliers International Consultancy, with end-2018 market rent expected to be around S$8.40 to S$9.00, it said.
The seller, Alkas Realty, will provide rental support of up to S$60.0 million or for up to five years to align the rental rates to the market rates and provide income stability, it said.
Including the rental support, the properties are expected to generate an acquisition net property income yield of around 5.0 percent, it said.