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Morningstar | Suntec REIT Acquires 55 Currie Street in Adelaide, Australia; FVE Raised to SGD 1.88

Suntec REIT announced it will acquire a 100% stake in a Grade A freehold office building at 55 Currie Street, Adelaide, Australia with net lettable area of 282,000 square feet for AUD 148.3 million, or about SGD 142.4 million. This translates into a purchase price of AUD 526 per square feet (or SGD 505 per square feet). The 31-year-old building is in Adelaide’s central business district and is a five-minute walk from the Adelaide railway station. This acquisition is expected to be completed by end of August 2019. Suntec REIT intends to fund this acquisition through the private placement of 111 million new Suntec REIT units (represents about 4.3% of the total number of units in issue before the private placement) that was completed in May 2019, which raised around SGD 200 million. We adjusted our forecasts accordingly by factoring in this acquisition and increased our fair value estimate to SGD 1.88 per unit (from SGD 1.82). Our no-moat and stable moat trend ratings remain intact.

The property is currently 91.6% committed with the Commonwealth government, South Australian government, Allianz and Data Action as its key tenants. The property will have an initial net property income, or NPI, yield of 8% (which is higher than the NPI yield generated by the trust’s other Australian properties) with an annual rental escalation of between 3.5%-3.75%. The vendor has also provided a 27 months rental guarantee on spaces that have not been let, post acquisition.

We view this transaction positively as: 1) it is distribution per unit, or DPU accretive to unitholders; 2) it provides the trust with an opportunity to expand into another capital city in Australia and adding another freehold asset; and 3) the trust will benefit from the annual rental escalation for this property. Following this acquisition and the previously announced acquisition of 21 Harris Street, about 23% of the trust’s net property income contribution will come from its Australian assets as opposed to 14% currently. The percentage of freehold assets within its total portfolio (including joint ventures and associates) will also increase to about 17% from 13% currently. This acquisition is in line with the trust’s strategy as management have previously said they are looking for acquisition opportunities to drive long-term growth for its unitholders and have raised capital through private placement for acquisition purposes and to pare down debts previously.