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Surprise Placement Lowers Suntec REIT’s DPU; Bullish In The Interim
Tradeable, Tradeable Ideas | 02 April 2014
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By: Raymond Leung
Articles (142) Profile
  1. Recent private placement has helped lower Suntec REIT’s gearing ratio; no further fund raising exercises expected for the year.
  2. Suntec REIT continues to enjoy high occupancy rates of above 90 percent. Diversification and expansion into Australia is also underway.
  3. Yield compression is expected as the placement shares will dilute overall Dividend Per Unit.

Analysts were surprised when Suntec REIT (Sun) decided to issue new shares for placement to institutional and private investors. The trust raised net proceeds of $341.1 million which will be used to repay its existing debts that are maturing this year.

This came as a surprise to analysts as Sun had just issued $310 million worth of medium-term notes for refinancing purposes.

Adding the recent debt and equity issue, Sun should have enough funds for its refinancing needs this year. Sun is not expected to raise additional funds this year as the next major refinancing is anticipated to be in 2015.

This share placement will strengthen the balance sheet as its debt level will be reduced from 39.1 percent to 35 percent. However, the Distribution Per Unit (DPU) will be lowered due to a dilution of shares from the new issue.

Some market watchers question the decision for the trust to raise funds through equity as interest rates are still low. The cost for refinancing might be higher should Sun decide to seek funds through debt in 2015 as it will clash with projections of an interest rate hike by the Federal Reserve.

Looking at a long term perspective, Sun is still expected to perform with its quality portfolio. The trust’s portfolio consists of commercial properties (retail and office) which includes Suntec City, Park Mall, One Raffles Quay and Marina Bay Financial Center.

Currently, the trust enjoys a high occupancy rate of above 90 percent. Sun is also in the process of diversifying its portfolio with the recent acquisition of an Australian office building which will complete its construction by 2016.

With the recent developments, OCBC Research reiterated its “Buy” call to Sun with a revised target price of $1.85.

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Trained in fund management, Raymond is familiar with shares and various investment vehicles.

Please click here for more information about this author.

Suntec REIT  1.910 -0.020 -1.04%   
Business: Real Estate Invs Trust. Ppties incl Suntec Office Towers, Suntec City Mall & Park Mall. [FY18 Turnover] Office (46.8%), Retail (34%), Others (Ad space, car park income , convention & exhibits) (19.2%).

Insight: Jan-19, FY18 gross revenue rose 2.6% to $363.5m du... Read More

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