Allianz Fund in Talks to Buy Half-Stake in Singapore’s OUE Bayfront

A half-slice of one of Singapore’s premier office towers may be soon to change hands, with OUE Commercial REIT confirming today that it is in exclusive discussions regarding a potential sale of a stake in the OUE Bayfront complex on Collyer Quay.

In a statement to the Singapore exchange responding to an article in Singapore’s Business Times, which first reported the deal negotiations, the manager of the S$6.8 billion ($5.1 billion) trust said, “The Manager wishes to clarify that while it is currently in exclusivity with an entity linked to Allianz Real Estate with respect to the sale of a partial stake in OUE Bayfront, negotiations between the parties and due diligence by the purchaser are currently still ongoing and parties have yet to enter into any binding agreement for the sale.”

The Allianz-linked entity is believed to be AREAP Core I, a $2.3 billion private fund which the property investment division of one of Europe’s largest ensurers set up with Korea’s National Pension Service (NPS) in June of this year.

The Allianz-managed vehicle is said to be discussing purchasing a 50 percent stake in the 399,824 square foot (37,145 square metre) office tower for a consideration of approximately S$640 million.

Paying a Premium for a Downtown Trophy

The discussions regarding OUE Bayfront are not certain to lead to a transaction, OUE Commercial REIT’s manager warned, however, should they move forward under the terms currently being discussed in the market, an eventual sale could see the trust controlled by Indonesia’s Riady family bringing in a premium price for a prime asset.

The deal under discussion would involve the Allianz-NPS fund purchasing the nine-year-old property at valuation equivalent to S$1.28 billion, or a more than a 7 percent premium over the S$1.18 billion that the property was valued at on 31 December 2019, according to the REIT’s annual report. At the reported transaction price, the property would be changing hands at the equivalent of S$3,200 per square foot, should a sale take place. International property consultancy JLL is said to be involved in the current talks.

The property, which is home to tenants including Bank of America Merrill Lynch, Warburg Pincus and Singapore’s Mandatory Provident Fund (MPF), has been described as one of the city’s most desirable business addresses. Currently fully occupied, the 18-storey tower commands asking rents of approximately S$11 to S$11.50 per square foot per month, according to recent market data.

Awarded a Green Mark Gold rating under Singapore’s guidelines for sustainable buildings, OUE Bayfront occupies its plot overlooking Marina Bay under a 99-year leasehold which began in 2007.

Selling a Top Asset as Hotels Bottom Out

The property is considered the most prominent among the seven assets in OUE Commercial REIT’s portfolio, which includes a total of four office properties as well as a shopping centre and two hotels. With OUE, a developer controlled by the Riady family of Lippo Group, holding a nearly 48 percent stake in the listed trust, reports of OUE Commercial REIT marketing assets first surfaced a few months ago.

OUE Commercial REIT bulked up last year by acquiring OUE Hospitality REIT in a S$6.8 billion merger which brought the Mandarin Orchard Singapore hotel and the adjacent Mandarin Gallery retail asset on Orchard Road, as well as the Crowne Plaza Changi Airport hotel into the combined portfolio.

In the third quarter of this year revenue per available room at OUE Commercial REIT’s hospitality properties was down by just less than 61 percent compared to the same period a year earlier. In a statement issued earlier this month, the REIT’s manager also warned that “Office occupancy and rents are expected to remain under pressure in view of dampened demand and continued focus on cost efficiency by occupiers amidst weak economic prospects.”

Reviving a Quiet Market

Should the Allianz-NPS gambit lead to a transaction, the deal would add some much welcome life to a local office market which, despite retaining its appeal to investors, has seen the value of sales of real estate assets fall by 74 percent during the first nine months of 2020, according to data from Real Capital Analytics.

Before setting up their fund, both Allianz and the NPS played key roles in major Singapore office acquisitions last year which the city has struggled to match in 2020.

In June of 2019 the NPS paid S$2 billion to purchase a 50 percent stake in Frasers Tower on Cecil Street from Singapore-listed Frasers Property.

Then just one month later, Allianz Real Estate teamed up with Gaw Capital to purchase the Duo Tower and Duo Galleria in Singapore’s Bugis area from a joint venture between Malaysia’s strategic investment fund, Khazanah Nasional Berhad, and Singapore’s state-owned investment company, Temasek Holdings for S$1.6 billion.

Singapore Keeps Its Appeal

Despite OUE Commercial REIT’s note of caution on the office market, Singapore was rated at the most attractive real estate investment destination for the second year running, in a survey report released this week by property industry group the Urban Land Institute and PwC.

While noting that his firm was not involved in the discussion between Allianz and OUE Commercial REIT, Galven Tan, deputy managing director for investment sales and capital markets with Savills in Singapore sees the OUE Bayfront talks as representing continued enthusiasm for office assets in Southeast Asia’s wealthiest city.

“We note that global liquidity remains very strong and investors are looking for good quality real estate in countries like Singapore,” Tan said. “On the demand side of things, tech companies continue to lead the take up of office space. Companies like Bytedance, Amazon, Tencent have taken up more space in recent months for the purpose of expansion and setting up of new regional headquarters.”