Felicia Tan Published on Wed, Jun 30, 2021

The manager of Suntec REIT has divested a portfolio of office strata units spanning 78,491 sq ft at Suntec Tower One and Two for $197 million.

The manager, on June 29, entered into sale and purchase agreements (SPAs) with unrelated third party purchasers who are wholly-owned by the same parent.

The portfolio comprises three office strata units across Suntec Tower One and seven office strata units across Suntec Tower Two.

The consideration translates to $2,510 per sq ft and represents a premium of 8.9% of the valuation of $180.9 million conducted by Savills.

Following the completion of the divestment, the REIT will record a net gain on divestment of $13.9 million.

The net property income (NPI) yield stood at 3.1%.

According to the manager, the divestment is in line with its portfolio management strategy to enhance unitholders’ value and to improve the REIT’s financial flexibility to pursue growth opportunities.

The net proceeds may be used to pare down bank borrowings to improve the REIT’s aggregate leverage ratio.

On the same day, the manager of the REIT announced the acquisition of a 100% interest in The Minster Building in London for an estimated consideration of £353.0 million ($667.2 million).

On June 29, the manager, through its indirect wholly-owned entities Suntec REIT Jersey 1 and Suntec REIT Jersey 2, entered into a sale and purchase agreement with IC Multi MB and IC Multi HoldCo.

Suntec REIT Jersey 1 and Suntec REIT Jersey 2 will acquire all the units in the building in a Jersey property unit trust, 3 Minster Court Unit Trust, which holds a 100% stake in the property.

The property is an 11-storey Grade A office development with retail stores on the ground and mezzanine floors. It is located within the central business district in the City of London, at the intersection of Mincing Lane, Great Tower Street and Mark Lane.

It is also surrounded by important institutions in the city such as The Bank of England, The Royal Exchange, Lloyd’s of London, and is within walking distance to Monument, Tower Hill and Liverpool train stations.

Built in 1990, it is the largest of three buildings within the Minster Court Estate.The property has a 999-year leasehold from Oct 24, 1990.It has a net lettable area (NLA) of 293,398 sq ft, and a committed occupancy rate of 96.7%.It has 13 tenants, a weighted average lease expiry (WALE) of 12.3 years based on NLA, and a net property income (NPI) yield of 4.5%.The market value of the property is said to be £370.0 million with the income guarantee and £365.4 million without.

As part of the terms of the acquisition, Suntec REIT Jersey 1 and Suntec REIT Jersey 2 have negotiated for the sellers to provide an income guarantee that will begin from the date of completion.

The amount comprises some £2.2 million with respect to two years of gross rental for the vacant spaces in the property and around £4.5 million on two years of gross rental for the retail leases and around one year for the co-working lease in the property.

The acquisition is said to be accretive to the REIT’s distribution per unit (DPU) and net asset value (NAV).On a pro forma FY2020 basis, DPU from operations would have increased by 3.6% to 7.666 cents from 7.402 cents.

NAV per unit would have been up by 0.7% to $2.068 from $2.054.

“We are pleased to expand our footprint in London with the acquisition of The Minster Building. The Grade A office development is a strategic fit with Suntec REIT’s existing portfolio and will enhance the resilience, diversification and income stability of Suntec REIT’s portfolio,” says Chong Hee Kiong, CEO of the manager.

“The divestment of Suntec City Office strata units, coming on the back of the recent sale of 9 Penang Road and together with the acquisition of The Minster Building is the result of our active portfolio management to enhance unitholders’ value. The proceeds from divestments and the recent perpetual securities issuance have improved our financial flexibility and enabled us to pursue growth opportunities for high quality and accretive assets in good locations.”

“The Minster Building is higher yielding than the divested assets and we achieved DPU and NAV accretions of 3.6%5 and 0.7%6 respectively for the unitholders,” he adds.

Following the completion of the divestments and acquisition, the REIT’s assets under management (AUM) will grow from $11.5 billion to $11.7 billion across 10 properties in Singapore, Australia and the UK.

The REIT continues to be anchored by the “resilient” office sector which will contribute over 85% to its total income.

Suntec REIT’s office portfolio WALE will grow to 5.55 years, while the retail portfolio WALE will increase to 3.18 years.

Units in Suntec REIT closed flat at $1.46 on June 29.