Lippo Seeks Acquisitions to Double OUE Assets: Southeast Asia

Overseas Union Enterprise Chairman Stephen Riady
Stephen Riady, chairman of Overseas Union Enterprise Ltd. Photographer: Munshi Ahmed/Bloomberg

Lippo Group, the Indonesian conglomerate controlled by developer Mochtar Riady, is seeking acquisitions to almost double the assets of its Singapore unit to S$10 billion ($8.1 billion) in as early as three years.

Overseas Union Enterprises Ltd., which gets about 65 percent of its revenue from hotel operations, is planning at least one investment a year in Singapore to boost property holdings that include office towers, luxury apartments and malls, Stephen Riady, the company’s chairman, said in an interview in Singapore.

“We are ready,” said Riady, 52, a son of the Indonesian tycoon who built the family regional property business. “There are more and more opportunities. The next one year will be a very interesting time.”

OUE, as the company is known, started its buying spree with $1.1 billion of assets when Riady invested in 2006, according to data compiled by Bloomberg. The properties it plans to buy over the next three to five years will help develop a base for property trusts and other investment vehicles, he said.

OUE last year bought the Crowne Plaza Singapore, which is connected to Singapore’s Changi Airport, and completed the rebuilding of its OUE Bayfront office development fronting the downtown Marina Bay. The company also acquired DBS Towers One and Two in the city-state’s financial district.

OUE said yesterday its second-quarter profit rose 13 percent to S$22.8 million as its hotels and OUE Bayfront boosted earnings. The stock climbed 21 percent this year, exceeding the 16 percent gain in the Singapore benchmark Straits Times Index.

Boosting Assets

OUE had S$5.5 billion of assets in 2011, up from S$1.8 billion in 2005 before Riady invested, according to the unit’s annual report. Riady estimates the holdings are worth as much as S$8 billion, including plans to add retail space to the two towers in the financial district. The new properties will be funded by bank loans, stock and bond sales, he said.

The purchases add to deals that have made the island the world’s most attractive market for mergers and acquisitions after the U.S., according to a ranking by the M&A Research Center at London-based Cass Business School and Ernst & Young. The increased transactions may also mean more competition for OUE, said Lau Wei Chong, a Singapore-based analyst at AMFraser Securities Pte.

“There are still opportunities, though it’s always whether they can find the right assets at the right price,” Lau said, adding that OUE needs assets offering yields of at least 7 percent to 8 percent. “It’s quite tough to find suitable assets in Singapore because every big developer is doing that.”

Rising Debt

OUE is seeking acquisitions as long-term borrowings more than quadrupled to S$2.1 billion at the end of last year, while annual profit declined for two straight years, according to data compiled by Bloomberg.

Of the 17 analysts who track the stock, nine rate it a buy while six have hold recommendations, according to data compiled by Bloomberg.

Riady’s family owns businesses including Lippo Ltd., the Hong Kong-listed property and investment company where he’s chairman and his father is honorary chairman. Lippo Group doubled its holding in OUE in March 2010, after buying a stake from United Overseas Bank Ltd. in May 2006.

“In 2006, when I heard the news that the local banks are required to divest from their non-core assets, I thought that’s an opportunity to buy a basket of properties through OUE, the platform that I can use for long-term growth,” Riady said. “I want to use this as our platform in Singapore and grow and become one of the blue-chip property companies one day.”

Luxury Homes

OUE is planning to develop more high-end homes even as sales of prime residential properties in Singapore slowed following more government curbs last year.

Singapore has been attempting to rein in prices since 2009. Foreigners and corporate entities have to pay an additional 10 percent stamp duty following measures introduced in December, the government’s latest restrictions.

Riady is counting on an influx of wealthy individuals to Singapore that made it Asia’s largest wealth-management center with $512 billion in offshore assets as of 2010, according to data compiled by the Boston Consulting Group. The region’s millionaires outnumbered those in North America for the first time last year, according to a report by Capgemini SA and RBC Wealth Management.

‘Wealthy Money’

“Worldwide, all the wealthy money is looking at Singapore,” Riady said. “It’s coming and you are going to see a lot more. Singapore is going in that direction.”

Riady said he will buy assets across property segments when prices fall. The acquisitions will help cut the company’s reliance on hotels. Sales from the hospitality business should account for a quarter of revenue, with 25 percent or 30 percent from offices, and another 20 percent to 25 percent from retail, he said. The rest will be generated from home sales, he said.

OUE owns 3 million square feet of office space in Singapore, worth about S$6 billion, Riady said.

“The slowdown started from the end of last year, but I think we are about to bottom,” Riady said, adding that the company has started to increase office rents.

OUE may create an office or hospitality real estate investment trust of at least S$1 billion as it increases its assets over the next three to five years, Riady said.

“We are finding more assets, improving it, creating a more sizable portfolio,” Riady said. “It’s too early for us to do a REIT now, we are not big enough, we must grow before we do it.”

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