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Fri, Oct 09, 2020 – 10:37 am
UPDATED Friday, October 09, 2020 – 2:39 pm
The manager of SUNTEC Real Estate Investment Trust (Suntec Reit) is seeking to acquire half of the stake in the Nova de Londres development of Canada’s pension fund, based on an agreed property value of £ 430.6 million (S $ 766.5 million).
The development consists of two Grade A office blocks with ancillary retail stores, Nova North and Nova South, as well as The Nova Building, a primarily residential asset.
The Nova Building has commercial premises on the ground floor and 170 residential units. Although the proposed acquisition includes the lease of the land in relation to the residential units, the 170 residential units are excluded from the transaction.
This will be Suntec Reit’s first investment in the UK, its manager said in a stock market presentation on Thursday night.
Suntec Reit will acquire from the Canada Pension Plan Investment Board (CPPIB) all units of the two unit trusts that indirectly own 50 percent of Nova’s properties. Reit and CPPIB signed a conditional purchase and sale agreement for the proposed agreement.
The other half of the stake in the development will continue to be held by London-listed Land Securities Group (Landsec), the developer and asset manager of Nova’s properties.
The estimated purchase consideration is £ 426 million, based on the current net asset value (NAV) of the two-unit trusts. The final purchase price payable is subject to adjustments based on the NAV of these trusts as of the completion date.
The Suntec Reit manager said the acquisition will likely be financed by loans denominated in sterling and Singapore dollars.
The agreement is subject to the approval of the participants in an extraordinary general meeting that is expected to be convened in December 2020.
The property’s 4.6 percent net income yield will provide a 4.9 percent increase to the unit distribution once the deal is completed in December this year, said Chong Kee Hiong, CEO of the manager of Suntec Reit.
Additionally, sellers will provide an income guarantee of up to £ 5 million, equal to two years of retail income, to buyers for two years after the completion date. This is due to the disruptions caused by the Covid-19 outbreak in the operations and income of retail tenants.
The agreed market value of £ 430.6 million, based on 50 per cent interest, is discounted by 1.2 per cent to the independent valuation of £ 436 million, including the income guarantee.
The Nova Estate is located in London’s main West End business district, bounded by Victoria Street, Bressenden Place and Buckingham Palace Road and directly opposite the main Victoria Station railway station. Nearby attractions include Buckingham Palace, Westminster Abbey and the Houses of Parliament.
Completed in 2016 and 2017, the Nova properties are the most recent large-scale addition to the West End, the Reit manager said.
Each of the three buildings is maintained under a long-term lease that expires on April 27, 3062, that is, 1,042 years remain. Its net leasable area is about 559,000 square feet.
The office and commercial spaces are fully occupied. Office tenants come from a variety of industries, with a weighted average lease maturity (WALE) of 10.6 years based on the net leasable area as of June 30. The Suntec Reit manager said the revenue stream from these office tenants accounts for about 90 percent of Nova’s total rental income from the properties.
Key office tenants include a government ministry, design and engineering consultancy Atkins, workspace provider The Argyll Club, energy and commodities trader Vitol, and private investment firm BlueCrest.
Ancillary retail in development includes food and beverage offerings and fitness services.
The two Grade A office buildings “will enhance the strength, diversification and quality of Suntec Reit’s portfolio with the contribution of revenue from high-quality office tenants and a long WALE of 11.1 years,” added the Mr. Chong.
With the Nova acquisition, Suntec Reit’s assets under management will grow to S $ 11.5 billion across 10 properties in Singapore, Australia and the UK, from S $ 10.7 billion as of June 30.
Reit’s manager has appointed ARA Dunedin Asset Management to provide ongoing local asset management and owner representation services for Nova’s investment. ARA Dundedin was created by Dunedin joining ARA Asset Management, which is directly managed by Suntec Reit, in 2019.
The proposed deal with Nova comes after CPPIB’s planned sale of its stake was said to hit a snag earlier this year when the coronavirus pandemic rocked global property markets. Bloomberg, citing people familiar with the matter, reported in March that ARA was no longer seeking to complete the deal. It was among a series of large transactions that were postponed or collapsed at the time, Bloomberg wrote.
Units of Suntec Reit fell 2 percent or S $ 0.03 to trade at S $ 1.44 as of 11:15 am on Friday.
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