OUE

OUE: Grp is diversifying out of SG and buying the tallest building in California, the US Bank Tower, and some related properties for US$367.5m ($459.4m). The US Bank Tower has 72 levels of office space and 6 levels of underground parking. It occupies an area of about 1.4m sf. As part of the acquisition, OUE is also buying the accompanying Maguire Gardens and a car park facility in downtown Los Angeles. OUE intends to leverage on its strengths in leasing and asset repositioning to increase occupancy and net operating income yield on the asset. While not much details has been released, the building is 56% occupied and seller MPG has been struggling with elevated debt levels from aggressive expansion and has been selling off non-core properties to help pare down debt. Deutsche note that OUE’s mgt had previously highlighted the potential for offshore acquisitions given subdued growth in SG, particularly distress opportunities which offer significantly higher returns. As such, this deal does not come as a surprise. Based on disclosures, the property is achieving annualized rents of US$18.8m (US$23.19psf vs.Class A asking rents of US$32psf as per Colliers) implying gross yield of 5.1% on purchase price or estimated NOI yield in the 2% range (reflecting the high vacancies). OUE expects the acquisition to be EPS-accretive (+4% to FY12 EPS). Deutsche maintains Buy with $3.32 TP UOB Kay Hian maintains Buy with $3.36 TP