OUE

OUE bought DBS Towers 1 & 2 for $870.5m or $985 psf NLA from Goldman Sach Real Estate fund, which paid DBS $690m for the 99-yr leasehold buildings in Nov 2005. The consideration represents a 13% discount to the last valuation of $1.0bn. Both towers are fully tenanted, with a total GFA of 1.24m sf & NLA of 883k sf with remaining lease of 56 yrs. Although fully leased, DBS, which occupies all of Tower 1 and almost half of Tower 2 will be relocating to MBFC in 2012.

The acqn is quickly turning into a major office player in the CBD area with a combined GFA of over 3m sf & is in line with the group’s strategy to grow asset size to $10bn in next 5-7 yrs from $2.9bn in 2Q10. OUE’s office portfolio comprises One Raffles Place & its annex tower (41% stake) & OUH (100%), which is under development. Based on the rather low average monthly rent of $5.50 psf, the deal translates to an effective yield of 6.7% against current funding cost of ~4%. OUE expects DBS Buildi

OUE expects DBS Building to benefit from positive rental reversions given the recovery in the office market.

In view of the significant leasing risk in 2012, OUE may reposition/enhance the asset as a mixed office/retail development or redevelop it into a residential project, which could command selling prices of $2,000psf. Overall, we view this transaction as positive for OUE.

OUE also reported 2Q net profit of $16.7m vs $47.8m loss a yr earlier. Revenue rose 81% to $51.7m on higher contributions from hospitality business and the new Mandarin Gallery mall. Proposes a DPS of 2¢.