ARA’s Suntec REIT Buys Half-Stake in UK Offices From CPPIB for $560M

Suntec REIT last week became the latest Singaporean investor to buy into a UK commercial property this year, with the ARA Asset Management-driven trust picking up a half-stake in a two building complex for £430.6 million ($560 million), according to a company announcement.

The trust manager’s decision to buy half of the Nova Victoria complex in London’s West End from Canada’s CPPIB gives Suntec REIT rights to income from two of the newest commercial properties in a posh part of the UK capital as it expands its S$10.5 billion ($7.7 billion) in assets under management.

“The Nova Properties are a strategic fit with Suntec REIT’s existing portfolio of high quality commercial assets in Singapore and Australia,” Chong Kee Hiong, CEO of the trust’s manager, ARA Trust Management (Suntec) Ltd, said in a statement.

The acquisition is Suntec REIT’s first in the UK, and was managed by ARA Dunedin, a UK unit of ARA Asset Management, which also recently led the purchase of a suburban London office park.

Buying into a West End Hub

Suntec REIT’s London deal gives it half-rights to a pair of office buildings and accompanying retail space opposite Victoria Station, one of the busiest transport hubs in the city.

The two office towers, which measure a total of 480,292 square feet (44,621 square metres) are said to be 100 percent occupied by tenants including engineering firm Atkins, energy and commodities trader Vitol, fund manager Bluecrest Capital Management and a UK goverrnment ministry.

Those tenants have, on a weighted basis, an average of over 11 years before the leases for their corporate homes expire, with nearly 90 percent of income from the complex’ income derived from its office space. 10.4 percent of the rent is derived from the Nova’s 78,811 square feet of retail space.

At the transaction consideration, Suntec is paying the equivalent of just over GBP 1,540 per square foot for the property, with the deal carrying a yield of 4.6 percent, based on net property income.

The commercial properties, along with residential space that was not included in the transaction, were developed by UK builder Land Securities, as phase one of a five building complex. Land Securities retains the other 50 percent of the commercial assets.

In June of this year CPPIB had sold back to Land Securities its 50 percent stake in the as-yet undeveloped second phase of the Nova project. The two office towers in phase one were completed in 2016 and 2017. Investment brokerage Eastdil Secured advised CPPIB on the sale to Suntec REIT, according to a company representative.

Suntec REIT’s manager says that the acquisition, which is subject to unit-holder approval, is likely to be financed through GBP and SGD denominated loans.

Singapore Still Loves London

In explaining its rationale for acquiring the office properties, Suntec REIT’s manager pointed to a UK workforce where 65 percent of participants are between 25 and 49 years of age, with office jobs in London projected to increase by 1.1 percent annually over the next five years.

ARA Asset Management, which as of 30 June managed S$110 billion in assets, had set up shop in the UK in 2019 with its establishment of ARA Dunedin, a joint venture focused on managing property funds across Europe.

At the same time that its Suntec unit announced the Nova transaction, the Singapore property powerhouse also announced that ARA Dunedin had managed Straits Trading’s GBP 76.7 million acquisition of the Bourne Business Park in Addleston, Surrey in August.

“These transactions are testament to the continued attractiveness of the UK as an investment destination, particularly when foreign capital work with established local partners,” ARA Dunedin founder and CEO Roun Barry said in a statement. Barry added that the company will remain cautious under current market conditions while continuing to target further acquisitions within the next 18 months.

UK news reports had indicated that ARA had put the Nova properties under offer late last year, only to have those earlier talks reportedly stall out in March of this year.

The pair of ARA-managed purchases come after Singapore’s largest developer, CapitaLand had made its own UK foray in February of this year. The Temasek Holdings-backed giant spent GBP 129 million to acquire the Arlington Business Park near London as part of a plan to expand its European assets.

In January, Singapore-listed Frasers Property had also opted for a UK business park, with the developer controlled by Thai billionaire Charoen Sirivadhanabhakdi paying GBP 135 million to acquire the Lakeshore – an office property which serves as Cisco Systems’ UK headquarters.