Month: June 2012
K-REIT – CIMB
A fuller OFC
We are net positive on K-REIT’s acquisition of another 12.4% in OFC, with increased control and good placement price outweighing slight negatives from higher asset leverage. Placement price of S$1.17 (15% premium to VWAP) could provide a benchmark for the share price.
We raise our DPU estimates and DDM-based target price (discount rate: 8.2%), factoring in accretion from the purchase. Maintain Outperform on favourable risk-reward. We see catalysts from an earlier bottoming of the office market and tax savings.
What Happened
K-REIT announced the acquisition of an additional 12.4% stake in Ocean Financial Centre (OFC) for S$261.6m (S$2,380 psf) or S$285.7m (2,606psf) including S$24.1m in income support till Dec 2017 from Avan Investments. This acquisition will take its stake in OFC to 99.9%.Equity cost of S$228m will be funded by a mix of debt (S$158.2m) and equity (S$70.2mprivateplacement at S$1.17apieceto Ong Holdings, 14.6% premium to VWAP of S$1.02, though still below NAV at 0.9x P/BV).
What We Think
Overall acquisition price and terms were fairly similar to that for K-REIT’s acquisition of its initial 87.5% stake back in Oct 11. Slight difference came from a lower support quarterly NPI of S$27.6m (prev: S$30.5m) and rental of S$13-14psf. Positives came from increased control and stake in the asset and premium on the placement price (which could seta target/support for share price). We understand that K-REIT had approached the vendor forthe purchase who apparently paid a premium to VWAP due to his confidence in K-REIT. Slight negatives however came from a fairly high aggregate leverage of 43.9% (previously 41.8%) after the deal.
What You Should Do
Overall, we are net positive on the deal, as we see advantages from increased control in OFC and good placement price, outweighing slight negatives from higher asset leverage. We raise our DPU estimates and DDM-based target price (discount rate: 8.2%), factoring in accretion from the purchase. Maintain Outperform on favourable risk-reward.
Suntec – Kim Eng
Fillip from LLP conversion
Tax transparency. Suntec REIT recently announced that it has successfully converted the vehicle which holds Marina Bay Financial Centre Phase 1 (MBFC1) from a private limited to a LLP (limited liability partnership) structure, which grants it tax transparent status. Previously, Suntec had to pay 17% corporate tax rate on rental income generated by MBFC1. The new tax structure took effect from 16 Jun 2012.
FY12-15F DPU up by 0.8-1.5%. Based on our estimates, Suntec will enjoy tax savings of SGD2.8-5.2m for FY12-15F, adding 0.8-1.5% to our forecasted DPU. We understand that the restructuring of One Raffles Quay (ORQ) into a similar tax-efficient LLP structure may not happen in the near term and has not factored this into our estimates (estimate boost of another SGD1.7-3.3m if allowed).
Remaking of SSICEC. Suntec will be closing the Suntec Singapore International Convention and Exhibition Centre (SSICEC) for a major overhaul in October this year. The six-month closure, the first major renovation since 1997, aims to bring the 17-year-old venue up to date and will cost SGD180m. All seven floors will be spruced up, with a grand entrance added on Level Three, and restaurants and shops on Levels One and Two. The number of meeting rooms will increase from 31 to 46, and all will be fitted with Wi-Fi connection.
Remaking of SCM. Suntec will spend another SGD230m to remake Suntec City Mall (SCM). Work is scheduled to start in mid-2012 and will wrap up by mid-2015. It will increase SCM’s NLA to 980,000 sq ft from the current 855,000 sq ft. Tenant mix will also be revitalised with more higher-yield mini-anchor stores and F&B outlets. Upon completion, we expect the annual rental income of SCM to be uplifed by SGD32m, boosting from FY11’s SGD103m to SGD135m.
TP increased by ~6% to SGD1.37, maintain HOLD. After factoring in the tax savings, our target price for Suntec goes up by ~6% to SGD1.37. The stock currently trades at 0.7x FY12F book and 7% FY12F yield. Downside risks include worse-than-expected average rentals for SCM and concentration risk on Suntec City. Reiterate HOLD.
FCOT – BT
FCOT secures new facility agreements to refinance $500m term loan
Frasers Commercial Trust (FCOT) has secured new facilities to refinance its existing $500 million term loan facility, its manager Frasers Centrepoint Asset Management (Commercial) Ltd said on Monday.
A transferable three-year term loan facility of S$320.0 million has been secured by a mortgage over and other security documents relating to FCOT's interest in China Square Central and 55 Market Street. The interest rate for the facility is the Singapore Swap Offer Rate plus a margin of 1.55 per cent per annum.
A transferable five-year term loan facility of S$185.0 million was secured by a mortgage over and other security documents relating to FCOT's interest in Alexandra Technopark. The interest rate for the facility is the SOR plus a margin of 1.83 per cent per annum.
"FCOT will be entering into hedging arrangements to hedge its interest rate exposure in accordancewith the terms of the new facilities," the manager said.
K-REIT – BT
Moody's affirms K-REIT's Baa3 corporate family rating
Moody's Investors Service on Monday affirmed K-REIT Asia's Baa3 corporate family rating.
The affirmation follows K-REIT's announcement that it will acquire the remaining 12.39 per cent stake in Ocean Financial Centre (OFC) from a private investor trust for $285.7 million.
"While K-REIT's leverage will increase as a result of its efforts to expand its portfolio, the outlook for the rating remains positive because we expect the company to bring its debt-to-total-assets to below 40 per cent in the near term," said analyst Jacintha Poh.
The company will fund the acquisition through a mix of 24 per cent equity and 76 per cent debt. K-REIT will raise $70 million through a private placement of 60 million new shares at $1.17 per share. The remaining $154 million will be funded by approximately two-year term loans.
K-REIT – BT
K-REIT raises stake in Ocean Properties to 99.9% for $228.4m
K-REIT Asia has for $228.4 million, acquired an additional 12.39 per cent interest in Ocean Properties LLP for a period of 99 years from December 14, 2011, its manager K-REIT Asia Management Limited said on Monday.
Ocean Properties, in which K-REIT currently holds an 87.51 per cent stake, holds Ocean Financial Centre (OFC), a 43-storey premium Grade A office development located at the Raffles Place and Marina Bay precincts.
OFC is situated on a site with a 999-year leasehold title that commenced from June 22, 1862 and approximately 90 sq m of the basement area is situated on a site with a 99-year leasehold title that commenced from June 13, 2001.
The development has 887,423 sq ft of net lettable area and comprises an office tower with a car park and retail podium. The car park and retail podium are currently under construction and scheduled for completion in 2013.