Suntec REIT enters deal to acquire Adelaide office tower for A$148 million

An entrance to Suntec City mall; taken October 2018.An entrance to Suntec City mall.

Suntec REIT has entered a deal to acquire a 12-storey freehold office building in South Australia, from AEP Currie for A$148.3 million (S$141.37 million or US$104.25 million), ARA Trust Management (Suntec), the REIT’s manager, said in a filing to SGX Monday.

“Underpinned by a strong cashflow of high quality office tenants, the initial net property income yield of 8.0 percent will provide immediate DPU accretion upon completion of the acquisition by end August 2019,” Chong Kee Hiong, CEO of the REIT’s manager, said in the statement. DPU stands for distribution per unit.

The property, which has a committed occupancy of 91.6 percent, offers annual rental escalations of 3.50 percent to 3.75 percent, the filing said. The Commonwealth Government, the South Australian Government, Allianz and Data Action are key tenants, it added.

The seller has agreed to provide a 27-month rent guarantee for vacant spaces, Suntec REIT said.

The acquisition will be funded with the proceeds of a private placement from April, the REIT said.

The REIT said the acquisition offers entry into a growing office market, with Adelaide set to benefit from increased public and infrastructure spending.

“Sustained investment in defence, medical and renewable energy industries provides a positive outlook for the Adelaide economy. These investments are anticipated to create jobs and boost demand for office space in Adelaide,” Suntec REIT said. “Vacancy rates are expected to fall, and office rents to rise.”

Chong said that after the deal’s completion, around 17 percent of the REIT’s assets under management and around 23 percent of its income contribution will be from Australia.

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