Suntec – CIMB
Limelight stolen by MBFC acquisition
• In line; maintain Outperform. 3Q10 DPU of 2.5 Scts met our expectation but was slightly above consensus, forming 25% of our forecast (9M10 at 77%) and 26% of consensus. The limelight, however, was stolen by the announcement of its acquisition of Marina Bay Financial Centre (MBFC 1). See our separate note “Acquisition of MBFC Phase 1” also released today. We keep our DPU estimates intact. Our DDM-based target price, however, has been raised to S$1.63 (discount rate 8.1%) from S$1.60 as we roll over to end-CY11. Maintain Outperform on further improvements in the retail and office outlook. We see near-term catalysts from more concrete signs of DPU accretion from the latest acquisition.
• 3Q10 NPI grew 7.6% yoy, led mainly by a 2.1% yoy increase in gross revenue on stronger office contributions and a lower property tax. 3Q10 DPU declined 14% vs. a milder 3% decline in distributable income due to deferred units payable to the original vendors of Suntec City.
• Positive office occupancy. Portfolio occupancy continued to strengthen on the back of better office occupancy which mitigated lower retail occupancy in the quarter. Office occupancy was up qoq for the fifth consecutive quarter to 98.5%. Retail occupancy at 97.6% was, however, down 1% pt qoq and 2% pts yoy.
• Improved debt maturity profile. Asset leverage was 32.9% at end-3Q10. In Oct 10, Suntec REIT secured a S$700m term-loan facility, which has been used to prepay a S$575m 3-year loan maturing in FY12 and also to refinance part of a S$400m club loan maturing in FY11. This was secured at a blended all-in interest margin of 1.5%, much lower than its average all-in financing cost of 3.77% as at end-3Q10.
• Positive revaluation of assets. Suntec REIT’s portfolio has been revalued at S$5.3bn (including One Raffles Quay) vs. S$5.2bn in Dec 09, with the revaluation driven mainly by higher valuations for Suntec City (S$3.9bn, retail S$1,844 psf, office S$1,819 psf) and ORQ (S$980m, S$2,200 psf).
Suntec – BT
MBFC whets Reit appetite again
Move by Suntec Reit comes in wake of foray by K-Reit Asia
Suntec Real Estate Investment Trust is buying a one-third interest in some properties in Phase One of Marina Bay Financial Centre (MBFC) for $1.4958 billion or $2,568 per sq ft of net lettable area.
The sellers are Cheung Kong Holdings and Hutchison Whampoa, flagship companies of Hong Kong billionaire Li Ka-shing. Suntec Reit’s manager is part of ARA Asset Management which is in turn, linked to Cheung Kong.
The deal – anticipated by some industry players – comes just weeks after K-Reit Asia said it would buy a stake in MBFC Phase One from its parent Keppel Land.
Suntec Reit will be holding an extraordinary general meeting to obtain unit holders’ nod for the acquisition. If it wins approval, it will be getting a stake in two Grade A office towers, Marina Bay Link Mall and 695 carpark lots.
MBFC Phase One was jointly developed by Keppel Land, Hongkong Land and Cheung Kong/Hutchison Whampoa.
The $1.4958 billion which Suntec Reit is paying for the Cheung Kong/Hutchison Whampoa stake includes an income support of $113.9 million.
Suntec Reit is forking out slightly less than what valuers thought the MBFC stake (including the income support) was worth as at Sept 30 – CB Richard Ellis valued it at $1.496 billion and Knight Frank at $1.497 billion.
Excluding the net present value of the income support, the price would have worked out to $1.3977 billion or $2,400 psf.
Suntec Reit yesterday shared a few details about how it would fund the acquisition and how the deal could affect its earnings.
It said that it is reviewing various financing options, which include the issuance of units or debt securities. It also expects the acquisition ‘to improve the earnings and distributions for unit holders’.
According to Yeo See Kiat, CEO of Suntec Reit’s manager, the purchase will further diversify Suntec Reit’s income stream and increase its presence in the Marina Bay area.
‘The high quality attributes of the MBFC property would offer a good long-term growth potential,’ he added.
Unit holders can expect more information when Suntec Reit releases a circular on the deal. This should happen in the next few weeks.
Suntec Reit counts Park Mall, Chijmes, a one-third stake in One Raffles Quay (ORQ) and properties in Suntec City as part of its portfolio. The net lettable area from office space is around 1.9 million sq ft. This could increase to around 2.4 million sq ft after the acquisition.
Some market watchers have been expecting Suntec Reit to purchase the MBFC stake from Cheung Kong/Hutchison Whampoa, after K-Reit said it would buy Keppel Land’s stake for $1.4268 billion or $2,450 psf (which includes a $29 million rental support).
Without the income support, the price of the MBFC stake in that deal works out to $2,400 psf.
These observers were guided by what happened in July 2007 – both Reits had announced on the same day that they would each buy a one-third stake in ORQ.
ORQ was also jointly developed by Cheung Kong, Keppel Land and Hongkong Land. Suntec Reit bought its share from Cheung Kong; K-Reit received its stake from Keppel Land.
Now that Suntec Reit has declared its intention to buy the MBFC stake, analysts will be shifting their focus on working out the financial impact of the acquisition.
With details lacking, it is hard to assess the impact of the deal now, said CIMB analyst Janice Ding. But looking at Suntec Reit’s annualised distribution yield of 6.6 per cent for the third quarter ended Sept 30, she concluded that it might not be easy for the deal ‘to be immediately accretive on the distribution per unit level’.
Suntec Reit gained two cents yesterday to close at $1.56.
StarHill Global – BT
Starhill Global Reit Q3 DPU up 5%
STARHILL Global Real Estate Investment Trust (Reit) yesterday released stellar results buoyed by recent overseas acquisitions.
The trust announced a 5.8 per cent rise in distributable income to $19.4 million for its third quarter ended Sept 30, 2010, up from $18.4 million a year ago.
Distribution per unit (DPU) was one cent – 5 per cent higher than for the previous corresponding period, when it was 0.95 of a cent.
YTL Starhill Global Reit, the manager of the trust, said the latest distribution represents a yield of 6.84 per cent on an annualised basis.
Net property income leapt 37 per cent year-on-year to $35.8 million from $26.1 million, and gross revenue followed suit with a jump of 38.7 per cent to $45.5 million from $32.6 million, which the manager attributed to the ‘contributions from the recently acquired Starhill Gallery and Lot 10 in Malaysia, and the David Jones Building in Australia’.
Francis Yeoh, executive chairman of YTL Starhill Global, said: ‘Our endeavours to grow Starhill Global Reit and create value for our stakeholders have led us to complete three quality acquisitions in 1H 2010 and diversify geographically into the best one-third retail stretch in two key cities – Perth, Australia and Kuala Lumpur, Malaysia.’
Starhill Global Reit’s portfolio includes 13 prime properties across five countries, valued around $2.6 billion.
YTL Starhill Global’s chief executive officer Ho Sing said: ‘With the inclusion of the Malaysian properties, retail contributed 87 per cent of our portfolio’s 3Q 2010 revenue, up from 84 per cent in the previous quarter. This increase provides our portfolio with a stronger revenue mix supported by the relatively robust retail sector.’
Starhill Global Reit’s local portfolio, which consists of stakes in Wisma Atria and Ngee Ann City on Orchard Road, contributed 60.8 per cent of total revenue, or $27.5 million in Q3 2010.
In all, the portfolio’s net property income for Singapore in the third quarter of this year was $21.1 million, 5.6 per cent lower than in Q3 2009 – mostly due to the office sector.
The counter ended trading yesterday at 61 cents, up half a cent.
Suntec – BT
Suntec Reit Q3 distribution per unit falls 14.3%
Distribution income falls 3.2% to $46.2m on 2.1% rise in gross revenue
SUNTEC Real Estate Investment Trust (Suntec Reit) has reported lower distribution income for the quarter ended September 30, 2010, compared to the year-ago period, and expects to face ongoing challenges in the office and retail sectors even amidst a recovery there.
Suntec Reit owns Suntec City Mall, certain office units in Suntec Towers One, Two and Three, and the whole of Suntec Towers Four and Five. It also owns Park Mall, Chijmes, a one-third stake in One Raffles Quay and a fifth of a joint venture that owns Suntec Singapore International Convention & Exhibition Centre.
Suntec Reit’s manager, ARA Trust Management (Suntec) Limited (ARA), reported yesterday that the Reit’s distribution income fell to $46.2 million, down 3.2 per cent from a year ago.
Its distribution per unit fell 14.3 per cent to 2.5 cents, from 2.9 cents the year before.
Its gross revenue was up 2.1 per cent to $63.2 million, while its net property income was up 7.6 per cent to $50.6 million.
ARA said Suntec Reit’s gross revenue was higher, thanks mainly to the higher office revenue achieved during the quarter. Its gross office revenue for the quarter was $30 million, 4.6 per cent up from the year before, mostly from the higher rental income from its Suntec City offices.
It also said that the committed occupancy of its Suntec City offices, as at September 30, had improved further to 98.1 per cent, from the quarter before. The committed occupancy of its Park Mall offices and those at One Raffles Quay stood at 97.5 per cent and 100 per cent, respectively. With this, Suntec Reit’s overall committed occupancy for its office portfolio strengthened to 98.5 per cent, as at September 30.
ARA chief, Yeo See Kiat, said, ‘I am encouraged by the further strengthening of the Singapore office market. In the nine months of 2010, we have renewed and signed more than 580,000 sq ft of office leases, leaving less than 1 per cent of our office portfolio expiring in FY 2010.’
Suntec Reit’s gross retail revenue was $33.2 million, or $28,000 lower than the year before – with Suntec City Mall contributing the bulk of the revenue. The committed occupancy of Suntec City Mall stood at 98.0 per cent, as at September 30, and the committed occupancy at Park Mall and Chijmes stood at 100 per cent and 90 per cent, respectively. That put the trust’s overall committed occupancy for its retail portfolio at 97.6 per cent, as at September 30.
Mr Yeo added, ‘On the capital management front, we have put in place a new $700 million term loan facility at a significantly lower interest margin, which will further improve Suntec Reit’s overall financing cost and strengthen our debt maturity profile.’
Looking ahead, ARA expects further strength for the property sector for the rest of the year, believing that the pickup in confidence seen in Singapore’s business climate will continue to buoy the office market.
‘However, the Singapore retail sector overall continues to experience rental pressure during the quarter, as the demand and supply situation in the industry is still finding its equilibrium. The manager expects ongoing challenges to the office and retail sectors notwithstanding signs of positive recovery in both sectors,’ Suntec Reit’s results statement said.
Suntec Reit shares closed 2 cents up at $1.56 yesterday.
FCT – BT
FCT slated to buy Bedok Point next year
FRASERS Centrepoint Trust (FCT) will buy Bedok Point from parent company Fraser and Neave by the second quarter of next year, the trust’s chief executive, Chew Tuan Chiong, said yesterday.
FCT, which owns four suburban malls in Singapore, paid $290 million for two malls – an extension to Northpoint at Yishun and YewTee Point at Choa Chu Kang – from Fraser and Neave’s property arm, Frasers Centrepoint, in January this year.
It paid for those malls by issuing new units and taking on more debt. Dr Chew said that Bedok Point would probably be financed in the same way.
He added: ‘We are also quite keen to increase the liquidity of the stock because it (FCT) is quite tightly held.’
BT understands that Bedok Point could cost around $120-140 million but the final price has not been fixed. The mall, which is now 99 per cent leased, is waiting to receive its Temporary Occupation Permit (TOP).
FCT yesterday announced a distribution per unit (DPU) of 2.16 cents for Q4 2010, up 6 per cent from 2.04 cents in Q4 2009. This takes total DPU for FY2010 to 8.2 cents, a 9 per cent increase over the previous financial year.
Total distribution to unitholders rose 29 per cent for the three months ended Sept 30, 2010 to $16.5 million from $12.8 million a year ago.
Revenue was boosted by the accretive acquisitions of the Northpoint extension (Northpoint 2) and YewTee Point as well as the successful revamp of the older portion of Northpoint.
Portfolio occupancy stood at 98.1 per cent as at end-September. Over the financial year, leases for 8.6 per cent of the portfolio’s net lettable area were signed, achieving average rental reversions of 7 per cent over preceding rents.
FCT also recognised a revaluation surplus of $42.5 million for FY2010, with all four properties recording higher valuations.
During the year, FCT also started the refurbishment of its Woodlands mall, Causeway Point. The enhancement programme is expected to cost $72 million and span 30 months and net property income is targeted to increase by about 20 per cent after that.
Dr Chew is upbeat about the outlook for Singapore’s suburban retail market.
‘We think that the rental levels are going to be sustained and there will even be rent increases together with Singapore’s economic growth and population growth,’ he said.
In FY2011, 241 leases that account for 30 per cent of FCT’s net lettable area will expire and Dr Chew expects good rental reversions on the back of the improving market.
FCT shares fell three cents to close at $1.50 yesterday.