Suntec REIT sells Chijmes, Asset Enhancement Initiative of $410 mil

Suntec REIT was reported to be selling Chijmes for $177mil, 23% over its valuation price to PRE 8 Investments late last year.  Chijmes only contributes to a small percentage of Suntec REIT's net property income and accounts for only 2.3% of its entire portfolio which comprises Suntec City, Park Mall and a one-third stake in One Raffles Quay and Marina Bay Financial Centre Phase 1.  Suntec REIT bought Chijmes for $128mil in 2005.  Some have said that it makes sense for Suntec REIT to have divested Chijmes since Chijmes being a conservation property might have been challenging to be enhanced as an asset in a manner that will increase its rental yield.

Asset Enhancement Initiative

At the same time, Suntec REIT plans to go through a $410 mil asset enhancement initiative (AEI) that will include spending $230mil on Suntec City and $180mil on Suntec Singapore. The AEI is a 4 phased project stretching from 2012 to 2015 and might affect DPU a bit.  Some observers have questioned on the amounts spent and whether it might have been better for this money to be spent on acquiring new properties that would be yield accretive instead.  The AEI is also only expected to increase the retail net lettable area by 14% to 1 mil square foot.  Some people are wondering whether the slight increase in net lettable area will translate to huge enough yields to compensate for the money spent.

From a different perspective, the AEI is expected to result in retail presence of 980,000 sq ft up from the previous 855,000 sq ft with an exciting new tenant mix of anchor and mini-anchor stores.  It is also expected to result in higher yielding NLA with overall stabilised rents projected to increase by 25%. The average rent psf of Suntec REIT is expected to increase from existing $10.10 psf per month to $12.59 psf per month.

Funding

Suntec REIT will be funding the AEI from the sale proceeds of Chijmes and bank borrowings.


[The writer is vested in Suntec REITs]