Thursday, 20 March 2014

Suntec REIT - Private Placements

Source: UOB KayHian Report

Suntec REIT has announced a private placement of 218m new units to raise gross proceeds of S$350m. Although management had indicated that the funds will be used to pare debt, we believe that an acquisition of a property in Singapore or Australia is forthcoming. 

Maintain BUY with a unchanged DDM-derived target price of S$2.12. (upside of +29% from today closing price of S$1.64)

WHAT'S NEW
■ Private placement to raise S$350m. Suntec REIT has announced a private placement of 218.069m new units at an issue price of S$1.605 per new unit to raise gross proceeds of S$350m. Net proceeds will amount to S$341m after fees. Lead managers and underwriters are DBS Bank, Standard Chartered and HSBC. The private placement has been fully subscribed.

■ Issue price at 3.5% discount to the VWAP of S$1.6839 per unit on 18 March, after adjusting for the advanced distribution. The new units will increase the number of units in issue by 9.6% from the 2,270.5m units in issue as at 31 Dec 13. The issue price is at the upper-end of the indicative S$1.575-1.615 range.

■ Estimated advanced distribution of 2.096 S cents for current unitholders for the period from 1 Jan 14 to 26 Mar 14, prior to the issue of new units. The next distribution will comprise Suntec REIT's distributable income from 27 Mar 2014 to 31 Mar 2014.

STOCK IMPACT
■ Proceeds used to pare debt for now. Suntec REIT has indicated that the proceeds will be used to repay debt facilities for now, which would bring the REIT’s gearing down to 33.8% from 38.0%. We estimate that if the proceeds are used to pare debt, our DPU estimates could be trimmed by 3.9-4.9% for 2014-16.

■ Acquisitions a more likely scenario. We believe that Suntec REIT will ultimately utilise the proceeds to capitalise on growth opportunities through acquisitions. This could include further acquisitions of Grade-A assets in Australia gateway cities including Sydney and Melbourne. In Singapore, Suntec REIT could potentially explore the acquisition of the Straits Trading Building (latest valuation: S$400m), or to further raise its stake in Suntec Convention Centre from its current 61%. The additional funds could also be used to finance a potential AEI at Park Mall.

■ Headroom of S$570m for acquisitions post the equity fund raising, if Suntec REIT were to maintain gearing levels at 38-40%. The additional headroom could also be utilised to partially finance Suntec REIT's S$482m acquisition of an upcoming office tower in Sydney.



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