Why OUE's latest US asset acquisition was just an 'opportunistic move'

Historical cost is ~US$350m.

According to CIMB, OUE mentioned previously that it was looking to acquire a “distressed” asset in the US with the potential to recycle for a profit in the future.

In 4Q12, Cushman & Wakefield says that the office market in Greater LA is now on firmer ground, with vacancy down 0.4% pts yoy, the first real decrease since 2006.

Timing-wise, this deal looks right. OUE will now need to prove to investors that it can turn NOI yields around, which CIMB estimates is currently c.1%.

Here's more from CIMB:

While there are few details on this transaction at the moment, we understand from public sources that 1) the historical cost of this asset is around US$350m, just 5% lower than what OUE is paying now and 2) the US Bank Tower was headed for loan default as MPG Office ran into solvency issues.

Overall, we do not see this acquisition as a reflection of OUE’s strategic direction but merely an opportunistic move to enhance returns for the group.

The US asset forms c.7% of OUE’s GAV. Management previously guided that Singapore will remain OUE’s core exposure (e.g. over 90% of total assets).

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