OUE likely to dodge Australia, Europe as expansion spots for now

It still finds US cities more attractive.

According to Maybank Kim Eng, OUE sees limited growth opportunities in Singapore in the next 2-3 years, especially with property prices staying high. Following the attempted acquisition of Fraser and Neave Ltd, a major consumer/property conglomerate, OUE has been receiving many acquisition offers from overseas.

The company recently announced that it will be acquiring US Bank Tower1 and related properties Maguire Gardens and a car park facility in downtown Los Angeles for SGD459m (USD367.5m) from MPG Office Trust Inc. (NYSE: MPG), a US REIT.

Here's more from Maybank Kim Eng:

OUE has paid USD7.5m in cash and the balance shall be payable in cash at closing between mid-June and early July 2013, via working capital and bank loans. OUE has a cash position of SGD604.6m as of end-Dec 2012.

OUE has previously cited that land costs in some US cities are one-tenth of Singapore’s, and value of properties could double or triple in the coming years as the economy picks up. We think this acquisition should be opportunistic in nature and will add SGD12 cents per share to our RNAV, with an IRR of 13% over five years.

Previous concerns about it veering away from OUE’s longer-term strategy are overdone, in our view. OUE is also looking at assets in tier-3 cities in China as its next engine of growth. It has raised the possibility of the Meritus brand expanding into Chongqing and the Mandarin Gallery venturing into Beijing.

Australia and Europe are two countries it probably will not venture into in the near term. OUE remains cautious on the Iskandar development in Malaysia, saying that there will be winners and losers in the property build-up as not all land parcels are equally favourable. Land tracts facing the waterfront are certainly more attractive but their prices have since escalated as well.

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