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OUE to sell iconic US Bank Tower for US$430m, below valuation

US Bank Tower - OUE.JPG
US Bank Tower is a 72-storey Class A office property in Los Angeles. OUE's asset enhancements on the building included an open-air observation deck and an outdoor glass slide.

US Bank Tower - OUE website 2.JPG
US Bank Tower is a 72-storey Class A office property in Los Angeles. OUE's asset enhancements on the building included an open-air observation deck and an outdoor glass slide.

US Bank Tower - sky slide - OUE website.JPG
OUE's asset enhancements on US Bank Tower included an open-air observation deck and an outdoor glass slide (pictured).

PROPERTY developer OUE Limited will sell US Bank Tower - known for its cameos in Hollywood movies and a sky-high outdoor glass slide - for US$430 million.

The sale price is about two-thirds of the property's US$650 million fair value as at Dec 31, 2019, according to OUE's latest annual report. 

The price was arrived at after taking into account, among other things, the property's market value and the current US property market conditions amid the coronavirus pandemic, said OUE in a bourse filing shortly after midnight on Friday.

OUE's wholly-owned subsidiary Beringia Centra has signed a sale-and-purchase agreement with the buyer, USBT Property Owner LP. The mainboard-listed company did not provide further details about USBT Property Owner LP on Friday, although it said on June 16 it was in talks with a possible institutional buyer for the sale.

Several US media outlets in mid-June reported that New York-based real estate investor Silverstein Properties - whose portfolio includes the World Trade Center in New York - had been in advanced discussions to buy US Bank Tower and was negotiating a price in the US$425-450 million range. Real Estate Alert also reported then that initial expectations had been for bids to come in at around US$700 million.

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Earnings per share (EPS) of the OUE group is expected to see a material decrease of about S$0.35 for this fiscal year as a result of the disposal. This impact to EPS is mainly non-cash and arises from the difference between the sale price and the book value of the property as at Dec 31, 2019.

US Bank Tower is a Class A office property located in downtown Los Angeles at the foot of Bunker Hill. Completed in 1989, it has 72 floors of office space and six levels of underground parking.

Beringia had acquired the property in 2013 for about US$367.5 million, and undertook a series of asset enhancement works, including the launch of an open-air observation deck called OUE Skyspace LA with a 360-degree view from Hollywood Hills to the Pacific Ocean, as well as an outdoor glass slide 1,000 feet (305 metres) above ground.

In connection with the building's sale, OUE also plans to sell its leasehold interest in OUE Skyspace LA. 

Beringia, as the landlord, and OUE Skyspace LLC, a wholly-owned subsidiary of OUE, are parties to a lease which grants OUE Skyspace LLC the right to operate the observation deck business.

While Beringia is engaged in discussions with "several" prospective purchasers of the Skyspace operations, no definitive agreement has been entered into for its sale, said OUE.

Any sale of OUE Skyspace LA or any transfer of the liquor licence separate from the sale of US Bank Tower will not affect the consideration for the building.

OUE said the disposal of the office tower is a strategic sale entered into after evaluating the group's inventory of assets.

Although the property is being divested below its valuation, it is still expected to benefit the company and its shareholders, as it will enable the group to streamline its asset ownership in a period when the longer-term outlook for the US property market may not be favourable, OUE said.

Tenants in US Bank Tower have reduced or temporarily shuttered their operations due to measures implemented by US state governments in response to the Covid-19 pandemic. As a result, rental income from the property has been affected.

By unlocking capital from this divestment, OUE will be able to recycle its capital to "more optimally" pursue higher-growth reinvestment opportunities, it added.

Moreover, in the absence of opportunistic acquisition targets, the sale will in the meantime help the group substantially increase its cash reserves, improve its net gearing by paring existing debts and remain nimble in the uncertain global economic climate.

The transaction is scheduled to complete around September 2020.

In a separate filing on Friday, OUE Commercial Real Estate Investment Trust's (OUE C-Reit) manager disclosed that under its right of first refusal, it had received an offer from OUE to acquire US Bank Tower for US$430 million.

However, OUE C-Reit's trustee declined the offer because it was of the view that buying the property based on the proposed terms would not be accretive to its distribution per unit.

"OUE C-Reit will continue to explore opportunities for the acquisition of yield-accretive assets which are in line with its investment criteria and strategy," the manager noted.

OUE started marketing US Bank Tower in January last year. The iconic building was "blown up" in the 1996 blockbuster Independence Day and has been seen in numerous other films.

OUE shares were flat at S$1.22 as at 4.53pm on Friday.

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