OUE/OUE-HT

OUE/OUE-HT: OUE-HT entered into a conditional agreement with OUE Airport Hotel (OUE-AH), a wholly-owned subsidiary of the sponsor, to acquire and leaseback the 320-room Crowne Plaza Changi Airport hotel for $290m (the lower of two independent valuations) now and its 243-room construction-in-progress extension for $205m ($1.25m higher than the mid-point of two independent valuations) when it is completed around end-2015 to mid-2016. The hotel, which is directly connected to Changi Airport Terminal 3, was opened in May 2008 and has occupancy above 85.0% with FY2013/9MFY2014 RevPAR of $235/$241. The extension, which will not contain any facilities apart from the rooms, is expected to benefit from the completion of Terminal 4 in 2017 and opening of lifestyle destination mall Project Jewel. The combined transaction of the hotel and extension translates to 879k/key, above 756k/key for Grand Chancellor Hotel transacted in June this year and below 1.5m/key for Westin in Marina Bay transacted last December. The master lease agreement requires OUE-AH to lease the entire hotel and extension from the date of acquisition to 27 May 2028, with an option to renew for two consecutive terms of five years each. Income support of up to $7.5m over a three-year period is promised OUE-HT if revenue from the extension falls below target quarterly rents for the first 12 quarters from completion. Expected yield is 4.5% for the hotel and 4.6% when combined with the extension upon its completion. Management is considering between fully funding the acquisition with debt, provided the cost of debt is below 3%, or through a mix of debt and equity. Either way, the transaction is expected to be DPU-accretive, with pro-forma DPU at 3.06cents if fully debt-funded and 2.94cents if partially debt-funded, compared to 2.90cents before the acquisition. On the side, OUE can realize a potential gain on divestment of more than $110m, about $45m to be attributed to the hotel and recognized in 2015.