Suntec REIT Buys 50% of Melbourne Office Project for $328M

Singapore-listed Suntec REIT is buying a 50 percent stake in a downtown Melbourne office project from Australian property group Mirvac for A$417 million ($328 million), according to an announcement by the REIT’s manager, ARA Trust Management (Suntec) last week.

Once completed, the still under-construction Olderfleet project at 477 Collins Street will mark the largest premium office building to be delivered in Melbourne in 25 years.

“We are pleased to expand our footprint in Australia with the acquisition of the premium-grade 477 Collins Street,” commented Chan Kong Leong, chief executive of ARA Trust Management (Suntec) in a statement. “This is a strategic fit with Suntec REIT’s portfolio of high quality assets and enhances the REIT’s income and geographical diversification.”

Mirvac Gets a Partner, Suntec Gets Guaranteed Rental Income

Under the terms of the agreement signed between the Aussie group and the listed trust managed by the unit of recently-privatised real estate investment house, ARA Asset Management, the Singaporean REIT will fund half the development costs of the project, according to the REIT’s manager. In return, Mirvac is providing a five-year rental guarantee from the project’s expected completion date in 2020.

Suntec is making the investment, which is the third Aussie deal for the REIT, at a cap rate of 4.8 percent, amid strong office take-up and sales volumes in Melbourne. Over 39 percent of the building’s available space has already been pre-leased by professional services firm Deloitte for its Melbourne headquarters office. Mirvac’s five-year guarantee is said to cover any unlet space.

Through the deal, the REIT’s Australian holdings will expand to around 12 percent of its total assets, as the trust’s manager seeks to diversify away from a slumping Singaporean office market.

Buying into a Trophy Melbourne Tower

The Olderfleet project will provide 56,000 square metres of office space as well as a retail component. The 40-storey premium grade A tower designed by Grimshaw Architects resembles a stack of three differently-sized blocks and will integrate a row of 19th century heritage buildings at its base.

The project, which broke ground in May, is located in the centre of Melbourne’s business district, within walking distance of regional transportation hub Southern Cross Station.

The deal comes as Mirvac sells a half stake in another mega-tower, at 664 Collins Street just down the road, to a fund sponsored by Morgan Stanley Real Estate Investing. The 4.97 percent cap rate on that A$138 million ($106 million) deal also is said to reflect strong pre-leasing commitments for the premium 40-storey office tower.

Mirvac’s history of capital partnerships also includes selling a 50 percent stake in a Sydney grade A office building to Singapore’s Keppel REIT (K-REIT) in 2011.

Suntec REIT Grows Its Australia Portfolio

With a portfolio of around S$9.3 billion ($7 billion) as of March 31, Suntec REIT is Singapore’s third-largest real estate investment trust. Listed in 2004, the trust manages high-quality office and retail assets in Singapore and Australia spanning over 362,000 square metres of lettable space, excluding the Olderfleet project.

The trust comprises full or partial interests in landmark Singaporean office and retail properties including Suntec City, Suntec Singapore Convention & Exhibition Centre, One Raffles Quay, and Marina Bay Financial Centre. In Australia, the REIT also holds a 100 percent interest in a North Sydney commercial building and a 25 percent stake in the Southgate Complex, a riverfront office and retail property in the arts precinct of Melbourne, which it acquired last November.

The trust’s manager, Singapore-based ARA, manages a S$36 billion ($26.4 billion) asset portfolio of nearly 100 properties spanning 5.1 million square metres in Asia Pacific. In early June, funds managed by ARA teamed up with Singapore’s Straits Real Estate to buy a grade A office tower in downtown Sydney for A$275 million ($207.3 million), which will be repositioned as a core property.