Suntec Reit sells 30% stake in new 9 Penang Road building

SUNTEC Real Estate Investment Trust (Suntec Reit) has sold its 30 per cent interest in 9 Penang Road, formerly known as Park Mall, to Haiyi Holdings.

The buyer will pay about S$89.9 million for the 15 million ordinary shares and 678 redeemable preference shares that Suntec Reit held in the joint venture (JV) company, which indirectly owns the property.

Net proceeds are expected to be around S$88.2 million, Suntec Reit's manager said in a filing on Wednesday evening. These will provide the financial flexibility to pare down bank borrowings to improve the Reit's average leverage ratio, or they may be redeployed to acquire accretive, higher-yield assets, it said.

Haiyi Holdings, which redeveloped the site together with Suntec Reit and SingHaiyi Group, already held a 35 per cent stake in the JV before buying out Suntec Reit's interest.

Completed in 2019, the new 10-storey Grade-A commercial building comprises two office towers and ancillary retail; the net lettable area is about 399,000 sq ft.

Swiss bank UBS Group has fully leased both office towers, and the development's committed occupancy was 98.7 per cent as at the end of March. The 99-year leasehold term started in 2016.

The purchase price of S$89.9 million was based on 30 per cent of the adjusted net asset value of the JV group. That took into account the agreed property value of S$985 million, on a 100 per cent basis, which is at a 5.7 per cent premium to the latest valuation of S$931.8 million as at May 1.

It is also 30.3 per cent higher than the total development cost of S$756 million, including land and construction costs.

The net property yield is estimated at 3.3 per cent per year over the agreed property value, based on the building's stabilised net property income, Suntec Reit's manager said.

It added that the agreed property value on a 30 per cent basis, which is S$295.5 million, works out to S$2,468 per square foot (psf) based on the net lettable area.

Chong Kee Hiong, chief executive officer of the Reit's manager, noted that the gain on divestment would be S$66.5 million. The return on its investment is about 305 per cent, if calculating net divestment profit as a percentage of cost of investment.

He said the divestment is part of Suntec Reit's "proactive portfolio management strategy to enhance unitholders' value". After the divestment, the Reit "continues to be anchored by the resilient office segment", which will contribute more than 80 per cent of its total income contribution, he said. Singapore properties will constitute some 75 per cent of total assets under management.

Units of Suntec Reit fell 2 per cent or S$0.03 to close at S$1.48 on Wednesday, before the announcement.

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