ARA buys Suntec Convention Centre in $235m deal

Acquisition will bring 76% of whole Suntec complex under its ownership

ARA Asset Management finally has a full house in its hand of cards - the real estate fund management firm added the Suntec International Convention & Exhibition Centre to its portfolio of Suntec-brand properties on Saturday.

ARA, an affiliate of Li Ka-shing's Cheung Kong group, sealed the $235 million deal for the convention centre with Suntec City Development Pte Ltd, of which Mr Li is an indirect shareholder. This deal will add one million square feet of space to ARA's portfolio.

With this acquisition, ARA will own both the convention centre as well as most of the office and mall space in Suntec City, come the finalisation of the deal in October. The office and mall spaces are owned by Suntec Reit, which is managed by ARA.

The convention centre, however, will be owned separately under the ARA Harmony Fund which was created by ARA for this purpose.

'We chose the word 'harmony' because now all the three components - retail, office and convention space - will be able to operate together in a harmonious manner,' John Lim, ARA's group chief executive officer, told BT.

This acquisition will bring 76 per cent of the whole Suntec complex under the ownership of ARA.

'We have always had a plan to buy back the remaining 24 per cent. We will do it if the price is good,' said Mr Lim.

While the decision was made not to include the convention centre in Suntec Reit, the trust will have a 20 per cent stake in the Harmony Fund.

The rest of the fund will be held by private investors.

'At the moment, the convention centre is an operating business, and the Reit cannot buy an operating business because the income fluctuates. The Reit looks for stable income from its properties,' Mr Lim explained.

Mr Lim was keen to stress that despite the change in ownership, it will be business as usual for the convention centre.

Pieter Idenburg, who has been the convention centre's chief executive officer since 2005, will continue to run the show. Mr Idenburg regards the acquisition as an opportunity to leverage on the shared resources of the mall and the convention centre.

'Going forward, we will be looking at the franchising opportunities for the Suntec brand overseas. With the backing of ARA as our management, we can now start those plans to go abroad,' said Mr Idenburg.

'Hopefully, we will put one and one together, but get three with this synergy. The retail side will benefit from the people coming into the convention centre, and the convention centre will have the infrastructural support of the mall area,' Mr Lim added.

In 2004, ARA had listed Suntec Reit in the biggest initial public offering of the year, having bought the Suntec City mall and a stake in the five-tower office development from Suntec City Development Pte Ltd. It did not, however, buy the convention centre which was loss-making at the time.

'Back then, the convention centre was held back by the owners as the price was not right, given that it was just post-Sars and the convention business was difficult,' said Mr Lim.

'We are happy with the $235 million price tag because it is worth the goodwill of the branding and the management expertise that we will get.'

ARA, which also owns Hong Kong-based Fortune Reit and Prosperity Reit, posted a 2 per cent increase in revenue to $17.8 million and a 10 per cent increase in net profit to $10.1 million for Q1 FY2009.

Source: Business Times, 3 Aug 2009