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Suntec REIT: Acquires 20% of Suntec Convention for S$25m through JV
Thursday, August 6, 2009
ARA Asset Management had acquired the Suntec International Convention & Exhibition Centre for S$235m from Suntec City Development Pte Ltd (independent valuation: S$240m). Suntec Convention has approximately 1m square feet of floor space spread over six levels. The investment will be owned through the ARA Harmony Fund. The buy is targeted for completion by 3Q09, upon which ARA will be appointed as the asset manager and convention & exhibition service provider. Suntec REIT will own a 20% stake in the Harmony Fund, while the rest will be held by private investors. Suntec's contribution is S$25m, funded through external borrowings, which is equivalent to just 0.5% of the REIT's total assets. The transaction jibes with Suntec's approach of increasing its ownership of the Suntec complex, as seen in previous strata office space buys. The transaction itself is small but could help support DPU through a rough reversion cycle. Potential strategic and synergistic benefits also exist. In a Business Times interview, ARA CEO John Lim said Suntec couldn't purchase the entire centre "at the moment [as] the convention centre is an operating business [and] the REIT cannot buy an operating business because the income fluctuates". We believe this implies intentions of hiving off the asset to Suntec at a later date as the business matures. Maintain HOLD and S$1.00 fair value.
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Suntec Reit
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