Category: Suntec
Suntec – OCBC
A Quay Acquisition
One Raffles Quay to be accretive. In Suntec REIT’s (Suntec) 3Q07 results, it announced its intention to acquire a one-third stake in One Raffles Quay (ORQ) for S$941.5m from Cheung Kong. The acquisition includes a rental top up of S$103.48m. No rental details were provided but we estimate that the acquisition should be marginally accretive. However, the market was less convinced and sold it down. To recap, we saw the best way to view the rental top up is as a form of a discount. ORQ’s actual value net of the income support is thus S$838m, or a reasonable S$1,877 psf. Our views appeared to be vindicated with the recent details released by Suntec, which showed an accretion of 1-8% depending on cost and proportion of debt/equity with respect to the funding of the acquisition.
ORQ NPI yield at 4.2%. We estimate the rental that Suntec will get from ORQ (including the income support) to be about S$8.30psf/mth. Grade A office presently should be able to achieve S$12-13psf/mth. So there is some upside potential to Suntec albeit in the middle term.
Financing details out. Suntec has revealed its financing options for the ORQ acquisition. 10% will be in the form of new units issued to the vendor, with the balance 90% to be in either straight debt or a combination of debt and convertible bond (CB). The maximum CB to be issued will be S$450m with its conversion price at 25% to 50% premium above the last traded unit price and a coupon of between 2.0% and 4.0%. All details are likely to be finalised at book building.
Maintain BUY and fair value of S$2.18. Since our ratings and fair value upgrade in end July, Suntec has done well, appreciating by about 3.0%. The investment case for Suntec remains intact. It is well positioned to benefit from the retail and office sector strong performance as well as from the F1 race in 2008 and the opening of Marina Integrated Resort in 2009. Finally in so far as acquisition growth is concerned, the ORQ transaction with its sponsor implies that future acquisition of assets from its sponsor’s development in the nearby new Business Financial Centre (BFC) is also assured. We thus retain our target size of S$5.5b and our fair value of S$2.18. Maintain BUY.
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.
Suntec – SGX
SUPPLEMENTAL AGREEMENT IN RELATION TO THE PROPOSED ACQUISITION OF ONE-THIRD INTEREST IN ONE RAFFLES QUAY
Singapore, 11 September 2007 – ARA Trust Management (Suntec) Limited (“ARA Suntec”), Manager of Suntec Real Estate Investment Trust (“Suntec REIT”), wishes to announce that HSBC Institutional Trust Services (Singapore) Limited, as trustee of Suntec REIT, has today entered into a supplemental agreement to the share purchase agreement signed with Cavell Limited (the “Vendor”) on 30 July 2007 for the acquisition by Suntec REIT of a one-third interest in One Raffles Quay through the acquisition of the entire issued share capital of Comina Investment Limited (“Comina”).
Under the terms of the supplemental agreement, the consideration for the purchase of the entire issued share capital of Comina shall be satisfied by (i) allotment and issue of units in Suntec REIT (“Consideration Units”) of an aggregate value of S$94.15 million, and (ii) payment in cash, by Suntec REIT to the Vendor. This is subject to, inter alia, the approval by the unitholders of Suntec REIT which will be sought at a general meeting to be convened to approve the proposed acquisition, as well as regulatory approval by the Singapore Stock Exchange.
Mr Justin Chiu, Chairman of the Manager said, “The issue of the consideration units underscores Cheung Kong’s commitment and support to Suntec REIT by aligning its interest along with that of Suntec REIT’s unitholders”.
Source : SGX
KREIT, SUntec – BT
One Raffles Quay: A good deal for buyers
KEPPEL Land and Cheung Kong (Holdings)’ sales of their respective one-third stake in One Raffles Quay (ORQ) to K-Reit Asia and Suntec Reit have generated much interest in the property market, with many seasoned observers saying the deals are underpriced.
KepLand and Cheung Kong are each selling their one-third stake for a headline figure of $941.5 million. In addition, the vendors are providing ‘income support’ to the respective buyers of up to $103.4 million through 2011 in the case of K-Reit Asia’s purchase, and $103.48 million spread over 54 months for Suntec Reit’s acquisition.
The acquisition price works out to $2,109 per square foot of net lettable area based on the headline price of $941.5 million. Stripping out the $103.4 million income support provided by the vendors reflects a lower net purchase price of $1,877 psf.
Office industry players generally regard this price as low. 1 Finlayson Green was transacted recently at over $2,600 psf. No doubt it is freehold but the 99-year leasehold ORQ, completed last year, is considered a superior property, with bigger floor plates and a top-grade tenant list including UBS, Credit Suisse, ABN Amro and Deutsche Bank.
Talk is rife that a deal is close to being struck for Chevron House (formerly Caltex House), a much older 99-year leasehold property, for $2,700 psf. The buyer is not expected to be a Reit.
Based on this, market watchers say such a non-Reit buyer would have offered at least the same price as Chevron House, if not around 10 per cent higher, or nearly $3,000 psf, for a new Grade A office property like ORQ.
By selling their stakes in ORQ to Singapore Reits (S-Reits), KepLand and Cheung Kong are getting a much lower price.
Reits (real estate investment trusts) need any acquisition to be immediately yield-accretive. Otherwise, there is a risk of the unit price on the stock market falling. This limits the price that a Reit can pay for a property – all other factors being equal.
However, non-Reit buyers, including foreign private equity and unlisted funds, can bid more aggressively. They are prepared to look beyond poor initial yields, on expectation that Singapore office rentals and capital values will continue to increass leases are renewed at higher market rents, and there is also a possibility of selling the asset a few years down the road, to crystallise capital appreciation.
Based on a $2,700 psf price, Keppel Land could have sold its one-third stake in ORQ for $1.2 billion. Assuming a higher $3,000 psf, its divestment could have been for $1.34 billion.
Why did Keppel Land feel compelled to sell its stake for a much lower price to its 40.7 per cent- owned associate K-Reit Asia, which is also listed on the Singapore Exchange?
Of course, there are some merits to the deal from KepLand’s perspective. As UBS Investment Research notes: ‘Selling the asset to K-Reit allows Keppel Land to control the asset in a more tax-efficient structure.’ Reits do not pay corporate tax at the vehicle level if they distribute all their income to unit holders.
But even after factoring the tax saving, KepLand will book a smaller contribution from ORQ following the divestment of its stake to K-Reit.
Of course, many KepLand shareholders may still hold units in K-Reit. The trust was not listed through an initial public offering; instead, KepLand shareholders were given 200 K-Reit units for every 1,000 KepLand shares they held, as at April 18 last year.
At the time that K-Reit was introduced to the Singapore Exchange last year, around 60 per cent of the total number of units went to KepLand shareholders, with KepLand itself holding the remaining 40 per cent stake.
Of course, there may be some KepLand shareholders who do not own any K-Reit units, because they sold them or they bought their KepLand shares after last year’s distribution-in-specie of the K-Reit units.
From their perspective, the argument that KepLand could have fetched a much higher price for its ORQ stake had it sold it to a non-Reit buyer, is even stronger.
The situation is even more complex for Cheung Kong’s sale of its ORQ stake to Suntec Reit. Cheung Kong itself does not hold a stake in Suntec Reit but its ultimate controlling shareholder Li Ka-shing owns some units in Suntec Reit. However, Cheung Kong has a 30 per cent interest in the entity that manages Suntec Reit and, through this, would get a share of the acquisition fee for the deal, usually 1 per cent.
But on a more positive note the deals are attractive to K-Reit and Suntec. They may not have found such attractive acquisitions elsewhere in Singapore.