Saturday, 22 March 2014

Analysis of Suntec Reit - Mar 2014

On 19 Mar, Suntec Reit announced a private placement of 218m new units (9.6% of its share base) at an issue price of S$1.605. Net proceeds amount at about S$341.4m, after deducting underwriting, selling, management-fee and other expenses. The issue price represents a 5.3% discount to its last closing price. The proceeds will be used to pay down debt.

The time for this private placement is intriguing. Only in Feb, there was a noteworthy major shareholder transaction. A Chinese billionaire Tong Jin Quan has acquired 5.1 million units of Suntec REIT, bringing Tong’s indirect stake to 114.4 million units, or 5.04% of the REIT. With that transaction, he is now the second-largest shareholder of Suntec REIT, after Suntec City Development. ( See the article below from The Edge)

From the daily price chart, Suntec was on a rising trend since Dec'13 until the announcement of the private placement. But the rising trend was not quite confirmed as indicated by the shrinking trading volume. The last 3 trading days after private placement announcement saw the price was testing its 50-day MA. We are yet to see whether there are more room for price drop in short term.



With the closing price at S$1.66 this Friday, it is trading at 0.78x NAV(S$2.108) with a current yield of about 6%.

The short-term DPU will be impacted due to the enlarged unit base, but in medium and long term, DPU should be stable or back on the rising trend due to fully contribution from post-enhancement of Suntec, and the new maiden investment in Australia. 

I have a few lots of Suntec for some time and intend to hold or add if the price drops down a bit further.

Related Post
1: Analysis of Suntec Reit - Nov 2013 

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From The Edge

Chinese billionaire Tong Jin Quan, the chairman of Shanghai- based Summit Property Development, saw his stakes in Singapore real estate investment trusts (REITs) grow in the month of February. Tong has been named the 35th richest man in China by Forbes, with a net worth of US$2.7 billion. Since Feb 18, shares in Suntec REIT, Soilbuild Business Space REIT and Cambridge Industrial Trust had been acquired on Tong’s behalf by Wealthy Fountain Holdings Inc. According to filings with the Singapore Exchange, Wealthy Fountain Holdings is wholly owned by Tong, through Shanghai Summit Pte Ltd. Tong’s other shareholdings include newly listed Viva Industrial Trust, Lippo Malls Indonesia Retail Trust, and OUE Commercial REIT.

On Feb 18, 5.1 million units of Suntec REIT were acquired by Wealthy Fountain, bringing Tong’s indirect stake to 114.4 million units, or 5.04% of the REIT. With that transaction, he is now the second-largest shareholder of Suntec REIT, after Suntec City Development.

Suntec REIT recently broke ground at its North Sydney asset on 177 Pacific Highway, where construction had begun on a 31-storey commercial tower. The Grade A commercial space is expected to be North Sydney’s first new commercial tower in six years. With an estimated A$413.2 million ($472 million) price tag to build, the tower is expected to be completed in early 2016. 177 Pacific Highway, which will offer a net lettable area of 423,915 sq ft, has been fully pre-committed, with Australian property development group Leighton Group taking the head lease of 76% of the total net lettable area.

For its FY2013 results released on Jan 23, Suntec REIT reported a 9% decrease in net property income to $148.7 million, and a 0.9% decrease in distributable income to $211.2 million. The decrease was due the partial closure of Suntec City mall, which is undergoing asset enhancement, mitigated by the positive rental reversions from Suntec City Office and Park Mall Office during the year. Distribution per unit was 9.3 cents, 1.7% lower than that for FY2012.

On Feb 19, 502,000 units of Soilbuild Bizspace REIT were acquired by Wealthy Fountain. Tong’s indirect stake in the REIT, which specialises in industrial business parks, now stands at 48.7 million units, or 6.04% of the REIT, making him the thirdlargest unitholder.

Soilbuild Bizspace REIT was listed on the Mainboard of the SGX last Aug 16, with a 3.2 million sq ft portfolio of business parks, multi-user factories and single-user factories valued at $935 million. It has the right of first refusal to four assets from Soilbuild Construction Group, the first of which is expected to be acquired in 2015.

For 4QFY2013, Soilbuild Bizspace REIT announced a 1.51-cent DPU, 3.4% higher than forecast figures in its IPO prospectus. Its net property income of $13.7 million and distributable income of $12.2 million were, respectively, 2.1% and 2.5% above IPO forecasts. The group’s overall portfolio occupancy rate rose 0.1 percentage point to 99.9%, owing to the expansion of an existing tenant at its Eightrium business park. Seventeen per cent of the group’s net lettable area is due for renewal in 2014 and about 47% of that has been pre-committed, with the rest under negotiations. Soilbuild’s management told reporters on Jan 23 that rental reversions for the year are expected to be positive as current spot rentals were signed in 2010 and are below the current market rate.

Tong’s latest transaction was on Feb 21, where 8.2 million units of Cambridge Industrial Trust were acquired on his behalf by Wealthy Fountain. Now, Tong has an indirect stake of 103.8 million units, or 8.32% of Cambridge Industrial Trust, and is the single-largest unitholder.

CIT owns a portfolio of 47 properties with a total gross floor area of approximately 7.6 million sq ft, valued at $1.2 million. The properties range from logistics and warehousing to light industrial, and are located close to major transportation hubs and in key industrial zones throughout Singapore.

For FY2013, CIT announced a DPU of 4.976 cents, compared with the 4.784 cents announced in FY2012. Net property income rose 5.5% to $80.4 million, while distributable income rose 6.4% y-o-y to $61.3 million. The trust completed four acquisitions worth $92.7 million and started two asset enhancement initiatives valued at $58.2 million that will complete in 4Q2014. Its $32 million proposed acquisition of 11 Chang Charn Road, a 97,546 sq ft six-storey, purpose-built warehouse and light industrial building located in Bukit Merah, is expected to be completed by 1Q2014.






Credit: Bloomberg

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From OCBC Investment:

Cash call for strength and growth
  • To raise S$341.4m in net proceeds
  • Intention to repay existing debt
  • Advanced distribution of ~2.096 S cents

Private placement of 218.1m new units
Suntec REIT announced yesterday that it will be issuing 218.1m new units at S$1.605 apiece following the close of the private placement to institutional and other investors. The issue price is nearer to the upper end of the range of S$1.575-S$1.615 proposed during the launch of placement, and represents a discount of 4.7% to the VWAP on 18 Mar (before placement announcement). ~S$341.4m in net proceeds will be raised, after deducting the expenses relating to the cash call, while the unit base is expected to increase by 9.6% with the issue of new units (expected on 27 Mar).
Strengthen balance sheet and position for growth
The move came as a surprise to us as Suntec REIT had explicitly expressed that it has sufficient resources to fund its growth plans just a quarter ago, and that it was trading at a 21% discount to book value. According to management, the current intention is to use the proceeds to repay its existing debt, which is likely to reduce its debt burden and aggregate leverage from 39.1% as at 31 Dec 2013 to 35.0%. However, given the change in stance, we believe that Suntec REIT may possibly be beefing up its financial strength for potential growth opportunities in the near term. In any case, we note that Suntec REIT will no longer have any refinancing needs until 2015 after the completion of the placement and refinancing of the loan due in Jun 2014, and that the weighted average debt duration will improve from 2.4 years to 3.6 years.
Maintain BUY with lower fair value of S$1.85
In connection with the placement, Suntec REIT also intends to make an advanced distribution of ~2.096 S cents/unit for the period from 1 Jan to 26 Mar 2014 (being the day prior to the issue of new units). With just five days to the quarter close, this seems to show that Suntec REIT’s performance is only moderately affected by the concurrent close of Phases 2 and 3 spaces of Suntec City in 1Q14. We lower our fair value slightly from
S$1.90 to S$1.85 after factoring the enlarged unit base and lower finance costs due to debt repayment. Maintain BUY on Suntec REIT as upside potential remains attractive.

3 comments:

  1. Good analysis.

    Suntec trading below NAV - maybe market thinks the underlying assets are overvalued? Interesting dividend play if it holds up.

    ReplyDelete
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    Property Investment Portfolio

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