Singapore’s OUE Proposes S$6.8B Merger of Commercial, Hotel REITs

A pair of Singapore-listed property trusts affiliated with Indonesia’s Riady family may soon be merged, according to a deal proposed today by the managers of OUE Commercial REIT and OUE Hospitality Trust.

Under the proposal, unit holders in OUE Hospitality Trust are being offered a combination of cash and units in OUE Commercial Trust as compensation for agreeing to the merger of the two listed vehicles, which have a combined market cap of S$2.83 billion ($2.09 billion).

Should the S$1.37 billion merger offer succeed, the two trusts, both of which are managed by units of Riady family controlled developer OUE Ltd, will create a combined vehicle with assets of S$6.8 billion, including office, retail and hotel properties.

Offering a Case for Greater Growth

“This transformative merger creates a diversified, sizeable and liquid REIT, which will significantly enhance our visibility within the S-REITs universe and increase our relevance to a wider investor base,” Tan Shu Lin, chief executive officer of OUE Commercial REIT Management, which manages OUE Commercial REIT, said in a statement.

Tan also indicated that the company expects the combined REIT to have a greater opportunity for growth and for delivering value to its unit holders.

Under the terms of the proposed merger, stapled security-holders in OUE Hospitality Trust are being offered S$0.04075 in cash and 1.3583 new OUE C-REIT units per stapled security held in the hospitality vehicle.

The proposed merger would involve cash payments of $1.5 billion by OUE Commercial REIT to purchase the hospitality REIT units, as well as $15.7 million for professional services fees and an acquisition fee estimated at $8.3 million.

Merger Offer at 1.6% Premium

“We strongly believe in the merits of the merger, which represents the combination of two high-quality and complementary portfolios,” Chen Yi-Chung Isaac, the acting chief executive officer of OUE Hospitality Trust’s manager said in the statement.

Chen added that, “Backed by continued growth momentum in the commercial sector and a positive outlook for the hospitality industry, the enlarged REIT will be well-positioned to deliver sustainable long-term value creation to its stakeholders.”

The offer to OUE Hospitality REIT security-holders represents approximately a 1.6 percent premium to the unit pricing at the close of trading on Friday, with trading in the trust halted this morning pending the deal announcement.

Singapore-listed developer OUE Ltd currently holds a 56.2 percent stake in OUE Commercial REIT and a 36.9 percent holding in OUE Hospitality, according to their most recent annual reports. Following the proposed merger, the OUE Group, which is controlled by the same Riady family which controls Hong Kong-listed Lippo Group, would maintain a 48.3 percnt stake in the combined trust.

Combining Singapore-Focused REITs

Should the merger be completed, the combined REIT would own some of Singapore’s highest profile hotels, shops and office buildings.

In September OUE Ltd agreed to sell the OUE Downtown building in the city-state’s Tanjong Pagar area to OUE Commercial REIT for S$908 million, adding a trophy office tower to the REIT portfolio.

However, in order to manage that acquisition, the trust issued 1.3 billion new units, with the commercial REIT’s earnings per unit then sliding by 34.2 percent in 2018, compared to the previous year.

In addition to OUE Downtown, the commercial trust also owns OUE Bayfront, One Raffles Place, and Lippo Plaza. OUE Hospitality Trust owns three properties, the Mandarin Orchard Singapore hotel and the adjacent Mandarin Gallery retail asset on Orchard Road, and the Crowne Plaza Changi Airport.

The merger was officially proposed less than two weeks after Singapore’s Urban Redevelopment Authority put forth a draft master plan for land use which encourages redevelopment of aging properties in the city’s traditional business district, with some of the assets currently held by the two REITs potentially benefitting from the change in the regulatory environment.

Note: this story has been updated to show OUE Ltd’s latest shareholding percentages in OUE Commercial REIT and OUE Hospitality REIT.