Category: Suntec
Suntec – OCBC
Upgrade on One Raffles Quay acquisition
Results are in line. Suntec REIT reported 3Q07 revenue of S$46.7m; +6% YoY but flat QoQ. Distributable income was equally strong at S$30.m; +23% YoY and +7% QoQ. At the DPU level, growth was more moderate at +12% YoY and +7% QoQ to 2.1 cents. Growth was mainly due to the increase in office revenue at Suntec City and Park Mall as well as the newly acquired strata space from Suntec City. However, higher property expenses eroded much of the better revenue. This led to cost to income ratio rising from 24.4% (2Q07) to 26.9% (3Q07). The results are broadly in line with our estimates.
Buys One Raffles Quay. Separately, Suntec’s manager ARA Trust Management (ARA) announced that it has acquired 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. In our opinion, the best way to view this rental top up is in the form of a discount. ORQ’s actual value net of the income support is thus S$838m or a reasonable S$1,877 psf. No rental details were provided; however, assuming an average rental of say S$10 psf/mth, this translates to an NPI of S$40.2m or a capitalized rate of 4.8%. Presently Suntec is trading at a yield of 4.4%, so ORQ should be marginally accretive. However, allowing for the rental top-up, an extra S$17.0m NPI could be recognized. This in turn will boost ORQ’s yield to 6.1% making the acquisition very accretive. Even though this scheme is innovative to the office sector, it has been used previously in the industrial REIT sector. In light of this acquisition, we have adjusted our FY08F from 8.70 cents to 8.84 cents.
Upgrade to BUY with revised fair value of S$2.18. Over the last quarter, Suntec has corrected from a peak of about S$2.10 to the current level of S$1.86 or by about 11%, which is close to our fair value of S$1.82 (based on asset size of S$4.5bn). However, in light of the ORQ acquisition, Suntec has reached our target asset size. We thus revised up our target size to S$5.5bn and hence our fair value to S$2.18. With over 17% potential upside to our fair value and a FY08F trading yield of 4.75%, the investment case for Suntec is looking compelling. We thus upgrade our rating from HOLD to BUY.
Suntec – BT
Suntec Reit’s income up 23% in Q3
SUNTEC Real Estate Investment Trust (Suntec Reit) yesterday announced a distribution income of $30 million for its third financial quarter ended June, 22.9 per cent higher than a year ago. Distribution per unit came to 2.1 cents for Q3 FY2007, up 11.9 per cent from the previous corresponding period, said ARA Trust Management (Suntec) Ltd (ARA Suntec), the manager of the Reit.
Yeo See Kiat, chief executive officer of ARA Suntec, said: ‘I’m pleased to report that Suntec Reit has achieved a very good growth for the office portfolio in this quarter. ‘In addition, Suntec City Mall has also reached a new high in its committed average passing rent, to $10.23 psf per month as at June30, 2007.’
Suntec Reit said its office portfolio continues to enjoy strong rental growth. Suntec office leases achieved strong renewal and replacement growth rates for the quarter, with leases secured at rates of $9-10.50 psf per month. Park Mall office leases also achieved strong renewal and replacement growth in Q307. The committed office occupancy at Suntec City and Park Mall increased to 99.4 per cent and 98.5 per cent respectively as at June30, 2007.
Rentals were boosted by asset enhancement projects. Suntec City Mall’s new Fashion zone at Galleria achieved an average rent of $24 psf per month compared with $12.27 psf per month previously, with a committed occupancy of 73 per cent to date. This is expected to strengthen further in the next quarter, the Reit said.
Suntec Reit also announced yesterday the proposed acquisition of a one-third stake in One Raffles Quay for $941.5 million. It is also acquiring a strip of state land of about 1,261 square metres along Penang Road, at a land premium of $14.5 million for amalgamation with Park Mall to create an additional floor area of 5,825 square metres (62,704 square feet). The total acquisition cost of the land would be $15.9 million.
KREIT, Suntec – BT
K-Reit, Suntec Reit buy stake in ORQ
Both trusts will pay $941.5m for one-third share each
K-Reit Asia and Suntec Reit have each agreed to buy a one-third stake in downtown office complex One Raffles Quay (ORQ). Both the real estate investment trusts (Reits) will pay $941.5 million each.
K-Reit will acquire its stake from its parent company Keppel Land. In a separate statement, KepLand said it will see a net gain of $221.6 million from the sale. Suntec Reit’s one-third stake will come from Hong Kong billionaire Li Ka-shing’s Cheung Kong Holdings. The remaining one-third stake in ORQ will continue to be owned by Hongkong Land, BT understands.
The three partners – KepLand, Cheung Kong and Hongkong Land – paid $462 million in total, or $290 per square foot (psf) of gross floor area, in 2001 to take equal stakes in the 99-year leasehold project. With the sales of their respective stakes, both KepLand and Cheung Kong will be exiting the ORQ investment.
On the other hand, the acquisition is expected to boost the portfolio sizes of both K-Reit and Suntec Reit substantially. For K-Reit, the purchase will more than double its portfolio size to $1.62 billion, from $677 million at end-2006, the trust said. Suntec Reit’s total assets under management would also increase to $4.8 billion, from $3.9 billion at present.
K-Reit said that its purchase will come with an income support of up to $103.4 million till 2011. Suntec will also receive rental top-up payments of $103.5 million (inclusive of GST) over 54 months, it said.
The two Reits also said they are looking at ways to finance their acquisitions. K-Reit plans to issue new units as well as look into debt financing, it said.
In line with this, KepLand, which held 40.7 per cent of K-Reit as at July 27, said that it will subscribe for new units in the Reit to maintain its proportionate stake.
Suntec Reit is also now reviewing financing options for its ORQ stake, including issuing new units, loans, convertible bonds and/or other debt securities.
On its part, KepLand managing director Kevin Wong said that the developer will continue to ‘unlock value in our investment buildings to re-deploy resources to grow our property development business and fund management activities in Singapore and the region’.
Located in the Marina Bay area, ORQ comprises two office towers with a net lettable area of about 1.3million square feet. The complex is fully let, and major tenants include ABN Amro, Barclays, Credit Suisse, Deutsche Bank, Ernst & Young and UBS.
Suntec Reit’s shares closed one cent up at $1.86, while K-Reit’s stock climbed four cents to close at $2.84. KepLand’s shares rose 10 cents to end the day at $8.40.
Suntec – UOBKH
3Q07: Not Much Good News
NPI increased 4.3% yoy, DPU up 11.9% yoy to 2.1 Scts. Suntec REIT’s Q3 results recorded a gross revenue of S$46.7m, a 6.3% increase yoy, while NPI was only a mere 4.3% yoy increase at S$34.1m. The slight increase in revenue was a result of higher office rental income, partially offset by a S$0.2m (or 0.8%) dip in retail revenue. The committed office occupancy also strengthened to 99.3%. Property expenses were 12.0% higher than 3Q06 as a result of higher maintenance charges for Suntec City, marketing expenses and property taxes. DPU however, improved by 11.9% yoy to 2.1 Scts.
Proposed acquisition of One Raffles Quay. Suntec REIT has entered into a conditional share purchase agreement with Cavell (SPV holding one-third of issued share capital of One Raffles Quay) for the acquisition of One Raffles Quay 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. The acquisition is targetted to complete by first quarter of 1Q08, upon which Suntec
REIT’s total portfolio would increase to S$4.8b.
Revise HOLD, fair value at S$2.31. Since our initiation with a HOLD at S$2.09, the share price has declined to the current price of S$1.86, and trading at an attractive yield of 4.41%. We will be revising our call and factor in higher acquisitions to our FY07F forecast of S$4.0b at present.