Suntec – DBS

A positive move

• Private placement of S$152.9m
• Balance sheet strengthened, minimal DPU dilutive impact
• Maintain Buy with TP of $1.38

S$152.9m private placement. Suntec Reit has completed a private placement of 128.5m new units at S$1.19 each, which was >5x oversubscribed. The issue price represents a 6.5% discount to the VWAP price of $1.2724 and 4.6% discount to the adjusted VWAP of $1.2475. Gross proceeds of S$152.9m (net S$149m) will be used to reduce bank borrowings. The new units will not be entitled to the advance dividend distribution.

Minimal dilutive impact. We view this exercise as a positive strategic move on the group’s capital management exercise. Post placement, gearing is anticipated to decline to 31.5% from 34.3%, increasing the flexibility of its balance sheet. In terms of DPU impact, FY10 DPU estimate of 9cts is lowered by 3.3% to 8.7cts, after adjusting for interest savings.

Maintain Buy. We maintain our Buy call for Suntec. Post placement, FY10 DPU yield remains attractive at 6.8%, on the higher end of its comparable peer range. Suntec’s properties are well located and is expected to benefit from the expected increased vibrancy of the Marina Bay area when the Marina Bay Sands IR is opened. Our adjusted target price of $1.38 offers potential absolute return of 14.6%.