Suntec – Phillip

Long-Awaited Placement

Suntec REIT announced that it has placed out 128.5 million new units at an issue price of $1.19 per unit to raise gross proceeds of $152.9 million in a private placement.

The placement units are priced at a discount of 6.5% to the volume weighted average price of $1.27 on 10 Dec 2009. The REIT manager intends to use the net proceeds of approximately $149.0 million to repay debt, bringing down total debt from $1.88 billion to $1.73 billion. Gearing will improve from 34.3% to 31.5%. The new units represent 7.7% of the total units. The new units are expected to commence trading on 22 Dec 2009.

We feel that the fund raising was long overdue, considering that most REITs have completed their recapitalization in the past few quarters. Furthermore the year-end portfolio revaluation might see a downward revaluation to Suntec’s asset and so the fund raising provides some degree of buffer. In the current credit environment, most REIT managers prefer to keep gearing below the 35% level as it allows them the flexibility to gear up if there is any acquisition opportunity.

Management has guided a distribution for the period of 1Oct – 21 Dec 2009 of approximately 2.44 to 2.54 cents per unit. Together with the distribution for the prior 3 quarters, total distribution for the year is at least 11.26 cents, which has exceeded our original forecast of 10.56 cents. In view of the year-end, we rolled forward our projections to FY10F. We have a DPU forecast for FY10F of 8.46 cents, which is
lower than FY09F mainly due to the additional units from the placement as well as the issue of the last two installments of the deferred payment units (69 million units). Our fair value is raised slightly from $1.13 to $1.14 and we keep our Hold recommendation.