Suntec REIT to acquire landmark Australian office asset for A$413m

Its first-ever overseas acquisition.

Suntec REIT announced that it has entered into an agreement to acquire a 100% stake in a freehold land in North Sydney CBD, which will be developed into a 31-storey office building, to be completed in 2016, with NLA of 424k sqft.

The acquisition, costing A$413m, will be fully funded by a 5-year unsecured loan.

The REIT intends to hedge the purchase price upon completion of the transaction, said research firm DBS.

The Leighton Group, a building, construction and property development group, has committed to occupying 76% of NLA for a period of 10 years after completion and has also provided a 4-year rental guarantee for any vacant space at the property.

"Strategically, we think the deal strikes a balance between buying growth vs taking on overseas diversification risks. While the timing of the deal was surprising, the venture was not, given the limited number of acquisition offerings in Singapore on much slimmer yields versus the high initial NPI yield of 6.9% of the asset on completion," said DBS.

"Post this transaction, Suntec’s AUM will increase to $$8.4bn. An estimated 6% and 9% of Suntec’s NAV and revenue respectively will be derived overseas. Whilst there is no overseas exposure target indicated, we believe Singapore will remain very much a core market for the REIT. In terms of financial impact, Suntec is expected to enjoy a small positive DPU carry of 0.4-2% during the construction period and a higher 5-6% boost to DPU, when completed in 2016," it added.

"Assuming the transaction is fully paid upfront, see-through gearing could reach c42.2% when completed and assuming no revaluation of the existing portfolio and new property. However, the deal is well-structured and the immediate impact on gearing is modest, given the progressive payment nature during construction. This negates the need for an immediate equity fund raising," it said further.

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