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Suntec REIT Foraying Overseas

suntec logo Suntec Real Estate Investment Trust (SGX: T82U), or Suntec REIT, will be setting foot overseas. It was announced that the trustee of Suntec REIT will purchase a freehold land and develop a property at 177-199 Pacific Highway, North Sydney, Australia for A$413.19 million.

Currently, Suntec REIT owns Suntec City mall and certain office units in Suntec Towers One, Two and Three, the whole of Suntec Towers Four and Five (collectively known as Suntec City), Park Mall, 60.8 per cent effective interest in Suntec Singapore Convention & Exhibition Centre (known as Suntec Singapore), a one-third interest in One Raffles Quay and a one-third interest in Marina Bay Financial Centre Towers 1 and 2, and the Marina Bay Link Mall.

The building in North Sydney is a 31-storey Grade A commercial tower and is slated to be completed by early 2016. The property is located in one of the most prominent sites in North Sydney Central Business District and is a 5-minute walk from North Sydney station.

Leighton Group, one of Australia’s largest building, contracting and property development group, will occupy 76% of the net lettable area and will provide a rental guarantee for four years for any vacant space on completion. The average weighted average lease expiry of Leighton Holdings’ lease is around 10 years.

As coupon payments of 6.32% per annum are payable to Suntec REIT during the construction, the property transaction is expected to increase earnings and distribution income to unit-holders.

ARA Asset Management Limited (SGX: D1R) will also stand to benefit from the transaction. Being the manager of Suntec REIT, ARA will receive acquisition fees due to acquisition of the property and recurring management fees from managing the property.

The acquisition will be fully funded by a S$500 million 5-year unsecured loan facility. Suntec REIT currently has a gearing ratio of 37.2%.

Mr. Yeo See Kiat, Chief Executive Officer of the Manager of Suntec REIT, ARA Trust Management (Suntec) Limited said, “When completed, 177 Pacific Highway will be the most iconic building in North Sydney. It is a strategic fit with Suntec REIT’s portfolio of high quality commercial assets in Singapore and is in line with our growth strategy to expand our footprint in Asia Pacific and enhance Suntec REIT’s income and geographical diversification.”

Mr Hamish Tyrwhitt, Chief Executive Officer of Leighton Holdings, said, “The project was keenly sought by buyers domestically and internationally. The sale to Suntec REIT is testament to the building’s design and is in line with our strategy to align with key investors.”

Shares of Suntec REIT last changed hands at $1.565 on Friday. The distribution yield is at 5.8% and the price-to-book ratio stands at 0.77 times.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.  Motley Fool Singapore contributor Sudhan P owns shares in ARA Asset Management.