OUE REIT Selling Shanghai’s Lippo Plaza for $263M to Exit China Market

Singapore’s OUE REIT is selling a Shanghai office tower for 35 percent below its 2018 valuation as it exits mainland China’s declining property market, according to a statement on Friday.

The manager of the SGX-listed trust informed the stock exchange that it is selling Lippo Plaza, a 30-year-old office block on Shanghai’s Huaihai Road commercial strip for a sale consideration of RMB 1.92 billion ($263 million).

“The Property’s shortening leasehold tenure and vintage building specifications have started to impact its valuation and competitiveness, especially with the current supply overhang in the Shanghai market,” Han Khim Siew, chief executive of the REIT’s manager said in the statement. “The stewardship of Lippo Plaza has now been entrusted to a committed long-term investor attracted by the Property’s very prime location.”

Market sources familiar with the transaction identified the buyer as a unit of Beijing Capital Financial Holding, the government investment fund of China’s capital city. The deal comes as occupancy in the office portion of the 58,522 square metre (629,920 square foot) tower fell to 74.6 percent as of 30 September from 90.8 percent at the same point in 2019, according to public statements by REIT manager.

Vacancy Rising

OUE REIT is selling its 91.2 percent strata ownership of the 36-storey tower, with the retail space having been refurbished in 2010 and the office lobby renovated in 2014. The average weighted term to lease expiry in the property is currently 1.9 years, with key tenants including Victoria’s Secret, Arc’teryx, Shanghai Pulan Desheng Industrial Development and Ralph Lauren, according to the statement.

With its 33,538 square metres of net lettable office space 74.6 percent occupied and its 5,649.5 square metres of retail space 97.8 percent leased as of 30 September, Lippo Plaza generated S$17.9 million ($13.2 million) in net property income for the 2023 fiscal year, putting a 5.7 percent yield on the deal.

The trust had owned the property on Central Huaihai Road in Shanghai’s Huangpu district since its 2014 IPO, with the sale expected to be completed within this year. Passing rents in the tower’s office element averaged RMB 6.22 per square metre per day as of 30 September, down nearly 16 percent from the same point in 2019.

Occupancy in the tower’s office space fell significantly this year, falling 14 percentage points from the 88.7 percent rate reported as of 30 September 2023. With property income dropping, OUE REIT’s manager sees better prospects in other markets.

“With no plans to further expand our footprint in China, this divestment offers an opportunity to monetise the asset and redeploy the proceeds towards more strategic uses, strengthening OUE REIT’s balance sheet and enhancing financial flexibility for future growth opportunities,” Han said.

Solely in Singapore

The agreed consideration in the deal is based in part on an agreed value of RMB 1.68 billion for Lippo Plaza, which represents a loss to the REIT of approximately RMB 89.0 million and is 5 percent below an independent valuation of the property as of 18 December 2024, according to the statement. The property had been valued at RMB 2.95 billion in December 2018, per the REIT’s records.

OUE REIT’s manager expects to net S$318.2 million in proceeds from the disposal, which it says will give it options to reduce debt, enhance its existing assets or undertake fresh acquisitions of more profitable properties.

“The proposed divestment aligns with the Manager’s proactive asset management strategy to optimise portfolio composition, strengthen income resilience, and bring sustainable return to OUE REIT’s Unitholders. Lippo Plaza is a non-core asset, contributing only 6.6 percent of OUE REIT’s total portfolio revenue as of September 2024,” Han said.

Following the sale, OUE REIT’s portfolio will be entirely Singapore-based, including the OUE Bayfront, One Raffles Place and OUE Downtown office towers, the Hilton Singapore Orchard and Crowne Plaza Changi Airport hotels, and the Mandarin Gallery shopping centre on Orchard Road.