Starhill Global – CIMB
Non-material sale
SGREIT just announced that it has successfully divested the Holon L property in Tokyo at a 6.0% premium over book. Given that this asset is one of the smallest in SGREIT’s portfolio, we view this event as non-material though we speculate that there could be more divestments in the coming months, given that management is committed to reshuffling its portfolio. It plans to focus on a few key markets where its strength lies, which in our view include Singapore, Malaysia and Australia. We maintain our Hold rating with an unchanged DDM-based (discount rate: 8.4%) target price of S$0.80.
What Happened
Starhill Global REIT (SGREIT) just announced that it has successfully divested the Holon L property located in Tokyo for ¥1,026m (c.S$12.8m). The selling price represents a 6.0% premium over book value, translating into a yield of 4.03%. SGREIT’s management revealed that the proceeds from the divestment will be used to repay its yen loans as well as for working capital purposes. As a result, its gearing will drop marginally by 0.3% to 28.7%.
What We Think
In our estimation, Holon is one of the smaller assets that SGREIT owns in Japan, accounting for c.9.3% of the NLA of its Japan’s portfolio and 0.4% of the REIT’s total NLA. In addition, in our estimation, c.S$0.5m of income is lost as a result of this divestment, leading to DPU declines of c.0.2% for FY14 and FY15, respectively. Moreover, as the proceeds from the divestment are used to pay down SGREIT’s yen loans, the impact of the yen’s devaluation on this transaction is minimal. Looking back, this is the second sale of its assets inJapan. We believe that SGREIT’s management is committed to focusing its strength on a few key markets such as Singapore, Malaysia and Australia. As such, there could be more portfolio divestments in the offing, including the mall in Chengdu China.
What You Should Do
Given that the impact of this sale on SGREIT’s earnings is minimal, we keep our Hold rating with an unchanged DDM-based target price of S$0.80.
Suntec – OCBC
Cash call for strength and growth
- To raise S$341.4m in net proceeds
- Intention to repay existing debt
- Advanced distribution of ~2.096 S cents
Private placement of 218.1m new units
Suntec REIT announced yesterday that it will be issuing 218.1m new units at S$1.605 apiece following the close of the private placement to institutional and other investors. The issue price is nearer to the upper end of the range of S$1.575-S$1.615 proposed during the launch of placement, and represents a discount of 4.7% to the VWAP on 18 Mar (before placement announcement). ~S$341.4m in net proceeds will be raised, after deducting the expenses relating to the cash call, while the unit base is expected to increase by 9.6% with the issue of new units (expected on 27 Mar).
Strengthen balance sheet and position for growth
The move came as a surprise to us as Suntec REIT had explicitly expressed that it has sufficient resources to fund its growth plans just a quarter ago, and that it was trading at a 21% discount to book value. According to management, the current intention is to use the proceeds to repay its existing debt, which is likely to reduce its debt burden and aggregate leverage from 39.1% as at 31 Dec 2013 to 35.0%. However, given the change in stance, we believe that Suntec REIT may possibly be beefing up its financial strength for potential growth opportunities in the near term. In any case, we note that Suntec REIT will no longer have any refinancing needs until 2015 after the completion of the placement and refinancing of the loan due in Jun 2014, and that the weighted average debt duration will improve from 2.4 years to 3.6 years.
Maintain BUY with lower fair value of S$1.85
In connection with the placement, Suntec REIT also intends to make an advanced distribution of ~2.096 S cents/unit for the period from 1 Jan to 26 Mar 2014 (being the day prior to the issue of new units). With just five days to the quarter close, this seems to show that Suntec REIT’s performance is only moderately affected by the concurrent close of Phases 2 and 3 spaces of Suntec City in 1Q14. We lower our fair value slightly from
S$1.90 to S$1.85 after factoring the enlarged unit base and lower finance costs due to debt repayment. Maintain BUY on Suntec REIT as upside potential remains attractive.
Suntec – AmFraser
SUNTEC REIT RAISING $341M TO REPAY DEBT
Suntec Reit is issuing 218.1 million new units at $1.605 apiece in a private placement. The move will increase the unit base by 9.7 per cent, and could dilute distributions per unit by 3.9‐8.4 per cent from FY14 to FY16.
Suntec Reit said the issue is likely to reduce its gearing from 38 percent to 33.8 per cent. Its aggregate leverage will also improve from 39.1 to 35 per cent. Noting that the issuance will improve capital structure and credit profile, it added that the fund‐raising exercise will “provide Suntec Reit with greater financial capacity and competitive advantage to capitalise on potential growth opportunities”.
The issue price per unit, a
SB REIT – DBSV
Maiden acquisition
- Maiden acquisition in Woodlands
- Accretive deal; FY14-15F earnings raised by c1.5% each
- BUY, TP raised to S$0.89 based on DCF
Maiden acquisition in Woodlands. Soilbuild REIT (SBREIT) announced it has acquired 39 Senoko Way, from Tellus Marine Engineering Pte Ltd for a total consideration of S$18m. The property will be acquired in two phases – an existing 4-storey industrial property (c. S$14.6m) and a proposed construction of a single storey warehouse (S$3.4m). Upon completion of both phases of the acquisition, the property will have total GFA of 95k sqft and sits on a long remaining lease tenure of 40 years (including a 30 year extension).
Accretive acquisition with long WALE, gearing to increase to c. 30.7%. The property will be leased back to the vendor, Tellus Marine Engineering Pte Ltd on a triple net basis for a period of 10 years offering good income visibility to SBRIET. The property is estimated to contribute c. 2% to portfolio and revenues. The initial yield is estimated to be north of 7.5%, which is higher than the portfolio average of 6.3%, implying that the deal will be earnings accretive to SBREIT. Given sufficient debt headroom, SBREIT will be funding this acquisition using debt and gearing is estimated to increase to c. 30.7%.
Maintain BUY, TP S$0.89. We have raised FY14-15F earnings by c1.5% each as we include this acquisition in our forecasts. Yields are attractive at c7.9-8.5%, one of the highest amongst the industrial REITs. Maintain BUY, TP revised slightly higher to S$0.89 based on DCF.
SB REIT – OCBC
Bite-size addition, but positive attributes
- Long leaseback term of 10 years
- Attractive NPI yield and rental step-ups
- Possible DPU accretion of 0.13 S cents
Maiden third-party acquisition
Soilbuild Business Space REIT (Soilbuild REIT) announced last Friday the proposed acquisition of an industrial property known as 39 Senoko Way in Woodlands, Singapore from third-party vendor Tellus Marine Engineering Pte Ltd (Tellus Marine). The total cost of the transaction is expected to be S$18.3m, comprising the purchase price of S$18.0m (S$189 psf GFA) and other acquisition-related expenses. Upon completion of the deal (around Apr 2014), Soilbuild REIT will lease the property back to Tellus Marine for a term of 10 years via triple-net lease arrangement.
More details on transaction
39 Senoko Way consists of an existing four-storey industrial building and a proposed single storey workshop which is expected to complete construction no later than nine months from the completion of the acquisition. The property is held under a JTC lease with a remaining land lease tenure of 10 years and an option to extend by another 30 years, subject to terms and conditions of the JTC lease. Management believes that the proposed acquisition will provide an additional growth driver, stable income as well as diversification to its portfolio assets. We understand that the property is expected to generate an initial NPI yield ranging 7.8%- 8.0% and offer an annual rental escalation of 2.5%. This is higher than that seen in most of its existing assets.
Maintain BUY
We anticipate Soilbuild REIT to fund the acquisition wholly by debt and internal resources, as its gearing ratio has remained very robust at 29.3%. Based on our projections, the new addition is likely to add an annualized 0.13 S cent to Soilbuild REIT’s DPU. We now incorporate the acquisition in our forecasts. Accordingly, our fair value is lifted slightly from S$0.85 to S$0.87. Maintain BUY on Soilbuild REIT as the total expected return remains compelling.