The Motley Fool

This REIT’s Second Acquisition in a Month Will Further Boost DPU Growth

Suntec REIT (SGX: T82U) is a REIT that owns commercial and retail properties in both Singapore and Australia. Its portfolio contains Suntec City (one of Singapore’s largest integrated developments), and it is also a part-owner of Suntec Singapore Convention & Exhibition Centre, One Raffles Quay, and Marina Bay Financial Centre Towers 1 and 2. In Australia, Suntec owns a commercial building in Sydney as well as a 50% interest in two properties in Melbourne.

On Monday, the REIT announced its second acquisition in Australia within the same month, that of 55 Currie Street in Adelaide, South Australia. Its previous acquisition of 21 Harris Street was attractive as it provided strong net property income (NPI) yield of 5.5%, but the current acquisition hits the ball right out of the park with a much higher NPI yield of 8%. Most importantly for investors, this new acquisition will help to boost distribution per unit (DPU) even further.

Here are some salient details of the new property Suntec is acquiring:

  1. Suntec is paying 148.3 million Australian dollars for a 100% interest in the property, which is a freehold Grade A office building. The property has approximately 282,000 square feet of net lettable area.
  2. 55 Currie Street has an initial NPI yield of 8%, which is much higher than the 5.5% offered by 21 Harris Street. The property enjoys 91.6% committed occupancy (with major tenants such as the South Australian Government, Allianz, and Data Action) and the vendor has also provided a 27-month rent guarantee for any vacant spaces.
  3. Weighted average lease expiry (WALE) for the property is 4.4 years, and the tenancy agreements come with annual rent escalations of 3.5% to 3.75%. The acquisition is expected to be completed by the end of August 2019.

Deepening its presence in Australia

With this acquisition, Suntec continues to build up its presence in Australia. The acquisition of 21 Harris Street bumped up the Australia portion of the assets under management (AUM) to 14% of the total portfolio, while 55 Currie Street increases this further to 17%. Australia now contributes nearly one quarter (about 23%) of rental income to the REIT.

Further DPU accretion

Unitholders should cheer the latest acquisition as it will help boost DPU by another 0.79%. Recall that the acquisition of 21 Harris Street already projected a DPU increase of 0.49%. If we take Suntec’s full-year 2018 DPU of 9.988 Singapore cents as a reference base, both acquisitions will increase full-year DPU to around 10.12 Singapore cents moving forward. Based on Suntec’s last traded price of S$1.94, this translates to a forward dividend yield of around 5.2%.

The Foolish bottom line

Suntec is offering steady DPU growth as a result of management’s opportunistic acquisitions in Australia. The REIT’s dividend yield of 5.2% compares favourably to CapitaLand Commercial Trust (SGX: C61U), which has a forward dividend yield of just 4.1%. Investors can look forward to more such acquisitions as Suntec has an excellent track record of acquiring quality assets with high NPI yields.

Stop worrying about the uncertain REITs market with our new Complete Guide To Buying The Best Singapore REITs. We give you 3 quick ways to easily value your REITs so you save tons of research time. Value your REITs today so you know exactly when to buy, sell or hold. Simply enter your email here and we will rush the 42-page PDF immediately to your inbox...for FREE!

The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. Motley Fool Singapore contributor Royston Yang owns shares in Suntec REIT.