The Minster Building in the City of London
After a pair of Singapore office sales, SGX-listed Suntec REIT has agreed to acquire a London office building for £353 million ($489.4 million), according to an announcement to the Singapore stock exchange.
The ARA Asset Management-controlled vehicle is purchasing The Minster Building, a 293,398 square foot (27,257 square metre) commercial block located at 21 Mincing Lane in the City of London, from companies controlled by Canadian pension fund manager Ivanhoe Cambridge.
The deal is Suntec REIT’s second London investment ever, after the listed trust entered the UK last October with the purchase of a $560 million stake in a West End office complex from another fund manager from the Great White North, the Canadian Public Pension Investment Board (CPPIB).
“We are pleased to expand our footprint in London with the acquisition of The Minster Building,” said Chong Kee Hiong, chief executive of the REIT’s manager. “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.”
Selling Singapore
In a presentation to the stock exchange, ARA said it was funding the London acquisition in part through the proceeds from a pair of office property sales in Singapore, including a recently concluded disposal of a set of strata title units in Suntec City, the REIT’s flagship asset.
Chong Kee Hiong of ARA Trust Management (Suntec) is developing a taste for London
The trust’s manager said it has sold 10 strata units — three at Suntec Tower One and seven at Suntec Tower Two — to an unrelated third-party purchaser for S$197 million ($146.6 million). Property consultancy Savills advised Suntec REIT on the disposal, with the firm’s head of capital markets linking the deal to growing demand for office assets in the city.
“The outlook for the office investment market is compelling for investors,” said Jeremy Lake, head of investment sales and capital markets for Savills in Singapore. “Rents are expected to start rising again in 2H 2021 and prices have already started to firm up in anticipation of the rental recovery.”
The trust will also be funnelling cash from its recent S$295.5 million divestment of a 30 percent stake in Swiss bank UBS’s Singapore headquarters into the London acquisition. The deal announced on 16 June put China-born billionaire Gordon Tang — also the largest shareholder of Suntec REIT — in full control of the recently renovated property at 9 Penang Road.
The divestment of 78,491 square feet of Suntec City strata units at an agreed property value of S$197 million (S$2,510 per square foot) represents an 8.9 percent premium to the independent valuation of S$180.9 million and a net gain on divestment of S$13.9 million, Suntec REIT said. The net property income yield was 3.1 percent.
Bulking Up in Britain
As Suntec sells office assets at some tight capitalisation rates in Singapore, it is buying into a London market with notably higher yields.
The Minster Building is an 11-storey Grade A office building with ancillary retail on the ground and mezzanine floors. Located at the junction of Mincing Lane, Great Tower Street and Mark Lane, the development is situated within the City of London CBD near landmarks like Lloyd’s of London and the Bank of England.
The 1990-vintage property, the largest of three buildings within the Minster Court Estate, has an income yield of 4.5 percent and a long weighted average lease expiry of 12.3 years, Chong said.
“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,” he said. “The Minster Building is higher yielding than the divested assets and we achieved DPU and NAV accretions of 3.6 percent and 0.7 percent respectively for the unitholders.”
Among the tenants occupying the building are securities brokerage ADM Investor Services, insurer Charles Taylor and online review website Trust Pilot. At the agreed consideration, Suntec REIT is paying the equivalent of £1,203 per square foot of net lettable area in the 999-year leasehold asset.
Ivanhoe Cambridge had acquired the building at 3 Minster Court in 2015 for £170 million. CBRE and Eastdil Secured advised the unit of Montreal’s Caisse de Depot et Placement du Quebec on the disposal.
Active Management
Upon completion of the divestments and acquisition, Suntec REIT’s assets under management will rise from S$11.5 billion to S$11.7 billion across 10 properties in Singapore, Australia and the UK.
Suntec City is the REIT’s signature asset
“We will continue with our active capital management to further strengthen Suntec REIT’s balance sheet,” Chong said.
Listed in late 2004, Suntec REIT owns most of the space in Suntec City, Singapore’s largest integrated commercial development, as well as a 66.3 percent stake in the adjoining Suntec Singapore Convention & Exhibition Centre, a one-third stake in One Raffles Quay, and a one-third stake in Marina Bay Financial Centre Towers 1 and 2 and the Marina Bay Link Mall.
Outside the city-state, the trust has full or partial ownership of five commercial assets in Australia, plus its half-stake in the two-building Nova Victoria office complex in London’s West End.
It raises a few eyebrows these kinds of deals. For a REIT trading at a significant discount to NAV (25%), they’d be better off undertaking a share buyback. Of course the manager won’t want to do this but the shareholders should give them a nudge. The disregard for shareholders is astounding.
Also, as a highly leveraged REIT, what were they thinking issuing 4.25% coupon perps? Just a good way to pump up their AM fees I guess. All of this shows as their SP has dropped over 30% since the start of 2018 while the Singapore benchmark REIT index is up about 2% of the same timeframe. Serial underperformer this one.