Straits Trading Building unlikely to be bought by Suntec REIT: report

An acquisition is unsustainable in the long term.

Mainboard-listed Suntec REIT is unlikely to buy the iconic Straits Trading Building, after reports circulated yesterday that the building may be sold for $450m.

DBS has mooted the possibility that the Straits Trading Company (STC) will sell the asset to Suntec REIT, due to STC’s tie-up with Suntec REIT’s manager ARA Asset Management.

A report by DBS notes that the properties $450m price tag is hefty compared to its $400m valuation as of the end of 2013. This means that a probable dal will only be marginally accretive to Suntec REIT.

Financing the deal through debt funding is also going to raise Suntec REIT’s gearing to around 40%, which is unsustainable in the long term.

“Although the Straits Trading Building is widely anticipated to be acquired by Suntec REIT, a sale to a 3rd party while may have a negative impact on the value of ARA’s total AUM is not a worse case scenario. This further reaffirms the group’s focus on extracting maximum value from assets under its management vs. simply retaining them for the purpose of generating management fees. For Suntec REIT, given the high capital value of its office assets in Singapore, we believe that near-term acquisitions will remain limited,” noted DBS.