Suntec Reit to buy Grade A office building in Sydney for $282m

SINGAPORE -Suntec Real Estate Investment Trust (Suntec Reit) has entered into agreements to acquire a freehold Grade A office building in Sydney, Australia for A$297 million ($282 million), manager of the trust, ARA Trust Management (Suntec), announced on Monday (July 1) morning before the market opened.

ARA Trust Management (Suntec) holds office and retail assets that include the Suntec City retail mall and convention centre.

The acquisition will be funded by Australian dollar bank borrowings to provide a natural currency hedge and equity, the manager said.

Located at 21 Harris Street in Pyrmont, Sydney, the property has a net lettable area of about 203,400 square feet (sq ft) comprising 181,900 sq ft of office space, and 21,500 sq ft of retail space.

21 Harris Street is under development and is designed to be a campus-style, nine-storey Grade A office building with an ancillary cafe, a childcare centre and gymnasium among other facilities.

The acquisition is expected to be completed in the first quarter of 2020 when the property achieves practical completion, and the development will continue to be undertaken by the vendor, Milligan Group, a residential and commercial space developer.

Said CEO of the manager, Chong Kee Hiong: "We are pleased to deepen our presence in Australia, with the acquisition of 21 Harris Street. The property is a strategic fit with Suntec Reit's portfolio of high quality assets, and further enhances the stability of the Reit's income.

"Following the completion of this acquisition, approximately 14 per cent of Suntec Reit's assets under management will be in Australia."

The property has a pre-committed occupancy of 91.2 per cent, and will be anchored by Publicis Groupe, a globalcommunications and marketing firm. The remaining pre-committed spaces has been leased to Campfire, an international co-working operator, as well as a childcare centre, and a gym operator.

The developer will also provide a rent guarantee on the unlet office space for three years post practical completion.

The acquisition is expected to be DPU (distribution per unit) accretive for unitholders, with an initial net property income yield of 5.5 per cent per annum upon completion, the manager said. It added that unitholders will enjoy income stability with growth through the long lease terms, and annual rental escalations of between 3 and 4 per cent.

Pyrmont is an inner-city fringe area two kilometres west of Sydney's central business district (CBD). According to the manager, the precinct has evolved into Sydney's technology media and entertainment hub, with Google and Paramount Pictures within a 500 m radius from the property.

"As the underlying demand for office space in Sydney CBD remains strong, rents are expected to remain at elevated levels. Pyrmont is in prime position to continue to benefit from the combination of high rents, and lack of suitable offices in Sydney CBD," the manager said.

Units in Suntec Reit closed flat at $1.94 on Friday.