Suntec – UOBKH

Payment for One Raffles Quay

Proposed acquisition of One Raffles Quay. Suntec REIT has entered a conditional share purchase agreement with Cavell (SPV holds one-third of issued share capital of One Raffles Quay) to acquire One Raffles Quay (ORQ) for S$941.5m. The acquisition is expected to be yield-accretive, taking into account potential rental top-up payments of S$103.5m over 54 months. 10% new equity for the acquisition. Suntec is paying for ORQ via issue of new units worth S$94.5m and the balance in cash. The cash portion would be satisfied with Suntec’s existing debt capacity.

No change to our earnings estimates. The acquisition is targetted to complete by 1Q08, upon which Suntec REIT’s total portfolio would increase to S$4.8b. We maintain our DPS estimates as we have already factored in the acquisition.

Lower target price due to increase in cost of capital. We increase our assumed risk free rate by 20bp and risk premium by 50bp due to greater market volatility. We reduce our fair price from S$2.29 to S$2.06 due to higher WACC assumptions. Maintain HOLD.