• To invest US$200m in fund
• Optimizing returns on cash held
• FV unchanged at S$2.69 Investing US$200m in Nuvest Real

Return Fund

OUE announced that it agreed to invest US$200.0m (S$254.2m) in Nuvest Real Return Fund (“the Fund”), a Cayman Islandsdomiciled exempted mutual fund. The Fund, launched in 2012 with seed capital from GIC, seeks to achieve stable annual returns above inflation through diversification across a range of investment classes and active management styles. The principal of the Fund Manager is Mr Aje Kumar Saigal, who has previously held senior leadership roles at GIC.

“Most favored nation” treatment for OUE’s participating shares

OUE will be subscribing for Tranche X participating shares, which is made available only to key cornerstone investors. The fee structure include a 1% management fee of NAV and a 10% performance fee equal to the appreciation in NAV during each performance period, subject to a high water mark and adjusted by the hurdle rate. The shares are redeemable on the first business day of every calendar month, with a minimum notice of 45 days days, and OUE is also entitled to a “most-favored nation” treatment with regards to any rights or benefits that may be enjoyed by any future shareholders in the fund (save for those included solely as a requirement of law in the shareholder’s jurisdiction).

Optimizing returns on funds in a low rate environment

Management sees this investment as part of its treasury operations and believes this will allow optimal returns on funds held in the current low interest rate environment through leveraging the expertise of the Fund. As at end 2Q14, we note that the group has significant net cash and equivalents of S$449.3m. Overall, we are neutral on this move and prefer management to return excess capital not earmarked for allocation into the group’s core businesses over the medium to long term. That said, taking into account the investment size and terms, this investment appears fairly liquid, which can yield cash should acquisition opportunities arises ahead. Maintain BUY with an unchanged fair value estimate of S$2.69 (20% discount to RNAV).

Source: OCBC Research - 29 Sep 2014