Suntec – BT

Suntec Reit dips, ARA surges on MBFC deal

Analysts guarded on deal’s impact on trust but upbeat on fund manager

SUNTEC Real Estate Investment Trust endured a sell-down on the stock market yesterday after investors learnt of its planned $1.496 billion property purchase.

In contrast, ARA Asset Management – whose unit manages Suntec Reit – saw its share price surge to its highest level this year on the back of the same news.

Suntec Reit said on Tuesday evening that it is buying a one-third stake in some properties in Phase One of Marina Bay Financial Centre (MBFC) from Cheung Kong Holdings and Hutchison Whampoa. Its units ended trading at $1.56 before the announcement.

Yesterday, Suntec Reit fell as much as five cents or 3 per cent to an intraday low of $1.51. But it later recovered slightly to close at $1.54 – two cents down. Some 9.79 million units changed hands.

Views on how the deal would affect Suntec Reit ranged from the guarded to the positive. Moody’s Investors Service put on review for possible downgrade the Reit’s Baa1 corporate family rating and Baa2 senior unsecured debt rating.

‘The large transaction size, if substantially funded via debt, may pressure its ratings,’ said Moody’s senior vice-president Philipp Lotter.

Analysts from Deutsche Bank expect a slight 2.8-3.5 per cent accretion to Suntec Reit’s FY2011 distribution per unit from the deal. Taking into account other factors, they raised the target price for the counter to $1.65 from $1.58.

Sentiments surrounding ARA were more upbeat. Its share price, which closed at $1.29 on Tuesday, rose eight cents or 6 per cent to an intraday high of $1.37 yesterday.

The real estate fund manager gave up some of these gains to close at $1.33 – four cents higher.

Two research houses raised their target prices for ARA. ‘ARA, as the manager of Suntec Reit, stands to reap 1 per cent in acquisition fees or $15 million in FY2011,’ said CIMB’s Janice Ding, who upped the target price to $1.57 from $1.35.

DBS Vickers revised its target price to $1.65 from $1.30. ‘MBFC will form part of the asset under management (AUM) of Suntec Reit, thus increasing ARA’s recurring fee income base,’ said analyst Derek Tan.

‘ARA’s goal of $20 billion in total AUM by 2012 appears within reach.’