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Suntec Reit eyes London foray with £430.6m acquisition of Nova buildings

Nova development.jpg
The Nova development consists of two Grade A office blocks with ancillary retail - Nova North and Nova South - as well as The Nova Building, a primarily residential asset.

SUNTEC Real Estate Investment Trust's (Suntec Reit) manager is looking to acquire a half stake in London's Nova development from 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 - Nova North and Nova South - as well as The Nova Building, a primarily residential asset.

The Nova Building has retail units on the ground floor and 170 residential units. While the proposed acquisition includes the ground lease 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 bourse filing on Thursday night.

Suntec Reit will acquire from the Canada Pension Plan Investment Board (CPPIB) all the units in the two unit trusts that indirectly hold 50 per cent of the Nova properties. The Reit and CPPIB have inked a conditional sale and purchase agreement for the proposed deal.

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The other half stake in the development will continue to be held by London-listed Land Securities Group (Landsec), the developer and asset manager of the Nova 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 these trusts' NAV as at the date of completion.

Suntec Reit's manager said the acquisition will likely be funded by British pound and Singapore dollar-denominated loans.

The deal is subject to unitholders' approval at an extraordinary general meeting expected to be convened in December 2020.

The net property income yield of 4.6 per cent will provide a 4.9 per cent accretion to distribution per unit upon the deal's completion in December this year, said Chong Kee Hiong, chief executive of Suntec Reit's manager.

In addition, the sellers will provide an income guarantee of up to £5 million - equivalent to two years of the retail income - to the buyers for two years after the completion date. This is in view of the disruptions caused by the Covid-19 outbreak to the operations and income of the retail tenants,

The agreed market value of £430.6 million, based on 50 per cent interest, is at a 1.2 per cent discount to the independent valuation of £436 million including the income guarantee.

The Nova estate is located in London's prime West End business district, bounded by Victoria Street, Bressenden Place and Buckingham Palace Road and just opposite major railway station Victoria Station. Landmark attractions nearby include Buckingham Palace, Westminster Abbey and the Houses of Parliament.

Completed in 2016 and 2017, the Nova properties are the newest large-scale addition to the West End, said the Reit manager.

Each of the three buildings is held on a long leasehold tenure expiring on April 27, 3062, that is, with 1,042 years remaining. Their net lettable area totals some 559,000 square feet.

The office and retail spaces are fully occupied. The office tenants come from diverse sectors, with a weighted average lease expiry (WALE) of 10.6 years based on net lettable area as at June 30. Suntec Reit's manager said the income stream from these office tenants makes up about 90 per cent of the Nova properties' total rental income.

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 the development includes food and beverage offerings and fitness amenities.

The two Grade A office buildings will "enhance the resilience, diversification and quality of Suntec Reit's portfolio with income contribution from high-quality office tenants and a long WALE of 11.1 years", Mr Chong added.

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 at June 30.

The Reit manager has appointed ARA Dunedin Asset Management to provide ongoing local asset management and owners’ representation services for the Nova investment. ARA Dundedin was created by Dunedin joining ARA Asset Management, which directly manages Suntec Reit, in 2019.

The proposed Nova deal comes after CPPIB's planned sale of its stake was said to have hit a snag earlier this year as the coronavirus pandemic roiled global real estate markets. Bloomberg, citing people familiar with the matter, in March reported that ARA was no longer looking to complete the deal. It was among a string of large transactions that were being postponed or had collapsed at the time, Bloomberg wrote.

Suntec Reit units fell 2 per cent or S$0.03 to trade at S$1.44 as at 11.15am on Friday.

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