Suntec – Kim Eng
Fillip from LLP conversion
Tax transparency. Suntec REIT recently announced that it has successfully converted the vehicle which holds Marina Bay Financial Centre Phase 1 (MBFC1) from a private limited to a LLP (limited liability partnership) structure, which grants it tax transparent status. Previously, Suntec had to pay 17% corporate tax rate on rental income generated by MBFC1. The new tax structure took effect from 16 Jun 2012.
FY12-15F DPU up by 0.8-1.5%. Based on our estimates, Suntec will enjoy tax savings of SGD2.8-5.2m for FY12-15F, adding 0.8-1.5% to our forecasted DPU. We understand that the restructuring of One Raffles Quay (ORQ) into a similar tax-efficient LLP structure may not happen in the near term and has not factored this into our estimates (estimate boost of another SGD1.7-3.3m if allowed).
Remaking of SSICEC. Suntec will be closing the Suntec Singapore International Convention and Exhibition Centre (SSICEC) for a major overhaul in October this year. The six-month closure, the first major renovation since 1997, aims to bring the 17-year-old venue up to date and will cost SGD180m. All seven floors will be spruced up, with a grand entrance added on Level Three, and restaurants and shops on Levels One and Two. The number of meeting rooms will increase from 31 to 46, and all will be fitted with Wi-Fi connection.
Remaking of SCM. Suntec will spend another SGD230m to remake Suntec City Mall (SCM). Work is scheduled to start in mid-2012 and will wrap up by mid-2015. It will increase SCM’s NLA to 980,000 sq ft from the current 855,000 sq ft. Tenant mix will also be revitalised with more higher-yield mini-anchor stores and F&B outlets. Upon completion, we expect the annual rental income of SCM to be uplifed by SGD32m, boosting from FY11’s SGD103m to SGD135m.
TP increased by ~6% to SGD1.37, maintain HOLD. After factoring in the tax savings, our target price for Suntec goes up by ~6% to SGD1.37. The stock currently trades at 0.7x FY12F book and 7% FY12F yield. Downside risks include worse-than-expected average rentals for SCM and concentration risk on Suntec City. Reiterate HOLD.
FCOT – BT
FCOT secures new facility agreements to refinance $500m term loan
Frasers Commercial Trust (FCOT) has secured new facilities to refinance its existing $500 million term loan facility, its manager Frasers Centrepoint Asset Management (Commercial) Ltd said on Monday.
A transferable three-year term loan facility of S$320.0 million has been secured by a mortgage over and other security documents relating to FCOT's interest in China Square Central and 55 Market Street. The interest rate for the facility is the Singapore Swap Offer Rate plus a margin of 1.55 per cent per annum.
A transferable five-year term loan facility of S$185.0 million was secured by a mortgage over and other security documents relating to FCOT's interest in Alexandra Technopark. The interest rate for the facility is the SOR plus a margin of 1.83 per cent per annum.
"FCOT will be entering into hedging arrangements to hedge its interest rate exposure in accordancewith the terms of the new facilities," the manager said.
K-REIT – BT
Moody's affirms K-REIT's Baa3 corporate family rating
Moody's Investors Service on Monday affirmed K-REIT Asia's Baa3 corporate family rating.
The affirmation follows K-REIT's announcement that it will acquire the remaining 12.39 per cent stake in Ocean Financial Centre (OFC) from a private investor trust for $285.7 million.
"While K-REIT's leverage will increase as a result of its efforts to expand its portfolio, the outlook for the rating remains positive because we expect the company to bring its debt-to-total-assets to below 40 per cent in the near term," said analyst Jacintha Poh.
The company will fund the acquisition through a mix of 24 per cent equity and 76 per cent debt. K-REIT will raise $70 million through a private placement of 60 million new shares at $1.17 per share. The remaining $154 million will be funded by approximately two-year term loans.
K-REIT – BT
K-REIT raises stake in Ocean Properties to 99.9% for $228.4m
K-REIT Asia has for $228.4 million, acquired an additional 12.39 per cent interest in Ocean Properties LLP for a period of 99 years from December 14, 2011, its manager K-REIT Asia Management Limited said on Monday.
Ocean Properties, in which K-REIT currently holds an 87.51 per cent stake, holds Ocean Financial Centre (OFC), a 43-storey premium Grade A office development located at the Raffles Place and Marina Bay precincts.
OFC is situated on a site with a 999-year leasehold title that commenced from June 22, 1862 and approximately 90 sq m of the basement area is situated on a site with a 99-year leasehold title that commenced from June 13, 2001.
The development has 887,423 sq ft of net lettable area and comprises an office tower with a car park and retail podium. The car park and retail podium are currently under construction and scheduled for completion in 2013.
HPH-Trust – DBSV
Sustainable yield story
• Container throughput growth at Trust’s ports running in line with expectations so far in 2012
• We do not foresee another global credit crunch scenario, nor any resultant sharp negative trade growth as implied by current share price levels
• Maintain BUY for >9% yield; TP US$0.85
Asia-US trades help prop up Yantian volumes YTD in 2012. Continuing with the trend seen in April, Yantian Port operating data for May was again encouraging, with volumes growing 5.1% y-o-y. YTD volume growth at Yantian Port now stands at 2.1%, and is trending in line with our estimates even before the traditional peak season has started. We think export bookings to the US are still holding up, though the European market remains weak and could weaken further.
Slow growth in volumes a reality but a repeat of 2009 – negative trade volume growth – is unlikely. According to our economists, the prospect of a Greek exit from the Eurozone does not have to be another “Lehman moment” for Europe or the rest of the world. The key driver for sharp decline in container trades in 2009 was the credit crunch, which rendered trade financing very difficult. The risk of a credit crunch remains lower this time than in 2008-09, as liquidity is abundant in Asia and markets have had 2 years to think about the current situation and prepare for it. Also, in 2008, the crisis was about dollars, this time it’s mainly the euro, which is not as important to Asia’s trade financing as the dollar.
FY12-13 DPU should still be sustainable even in bear-case scenarios. Under our base case scenario, we expect the Trust to meet its DPU guidance of 6.6UScts for FY12, after taking into account some degree of capex deferral. We also devise 2 sets of pessimistic scenarios, as shown on inside pages, but according to our calculations, unless tariff rates are affected materially, DPU for FY12/13 will still be above the (annualised) FY11 DPU of 6.0UScts. But despite these largely secure cash flows, the Trust is trading in excess of 9% yield, which makes it one of our top large cap high yield picks in Singapore.