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Suntec REIT: 3 Quick Facts You Could Have Missed
Corporate Digest | 03 April 2014
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By: Peter Ng
Articles (81) Profile

Many would be familiar with Suntec City, the five-towered building litted with a massive screen on one of the building’s exterior, situated diagonally from the war memorial at the City Hall district. Given its name, it comes at no surprise that the Suntec City is owned by Suntec Real Estate Investment Trust (Suntec REIT).

However, there could be some interesting facts, fine prints which one could have missed out about the REIT, including owning several other properties under its portfolio despite its name. But, this does not involve inconspicuous rumours about Li Ka-Shing’s intention of constructing Suntec City’s layout, representing a fengshui piece to “trap wealth”.

Marina Bay Financial Centre Properties (MBFC)

Located in the heart of the Marina Bay district, Suntec REIT silently possesses a one-third interest in MBFC properties through the acquisition of a stake in BFC Development. Wait, isn’t MBFC properties under Keppel Real Estate Investment Trust’s (Keppel REIT) portfolio?

Indeed, the remaining stakes are co-owned alongside with property giants, Keppel REIT and Hongkong Land, given that the development was a partnership between the three companies.

As MBFC properties were developed in two phases, Suntec REIT’s ownership in MBFC properties comprises of developments under phase one. These properties consist of MBFC Towers One and Two as well as the Marina Bay Link Mall. Also within the phase one development of MBFC properties, one might wonder why is Marina Bay Residences excluded?

The answer point to Suntec REIT’s focus of maintaining a portfolio of commercial properties including retail and office space which Marina Bay Residences do not fall under.

Park Mall

Besides being a home furnishing mall for high end furniture or a less crowded hang out, Park Mall seems to be the less popular alternative compared to the almost always jam-packed Plaza Singapura (under CapitaMall’s Trust portfolio).

Before this property is deemed as a problem child for Suntec REIT, Park Mall’s performance on the other hand tells a different story. Net property income for 2013 and 2012 came in at $17.9 million and $17.1 million respectively.

When matched against the property’s purchase price of $245.1 million, a rental yield of 7 percent is derived from Park Mall. This ranks the property first with the highest return of investment among Suntec REIT’s portfolio.

Further, with two strips of land along Penang Road acquired from the Singapore Government for $15.1 million, this could potentially be a catalyst for increased distribution for Suntec REIT as a result of asset enhancement initiative in the near future.

Convertible Bonds

As the term convertible bonds appear, it is only natural for existing shareholders to wonder what’s the conversion price and dilution involved in the bond issue. However, in the case of Suntec REIT, the $280 million convertible bond issue carries a conversion price of $2.111 per share.

At a closing price of $1.67 per share on 2 April 2014, contrary to a dilution, these convertible bonds are issued at a premium to its current share price.

Nevertheless, even if share price were to fall below the conversion price, this would still bid well for Suntec REIT since the yield of 1.4 percent on the convertible bond is way lower than its average cost of debt of 2.7 percent, providing a cheaper way of financing for the REIT.

Investment Merits

  • Proven track record of yield accretive acquisition.
  • Potential to ride on tight office space supply as office rental begins to stabilise.
  • Consistent distribution per unit.

Investment Risks

  • Concentrated lease portfolio of banking services in One Raffles Quay and MBFC Properties.
  • Gearing is standing relatively higher compared to other office and retail REITs at 38 percent.
  • Acquisition of 177 Pacific Highway would only begin contribution in 2016.

SI Research Takeaway

As an investor, it is important that we understand that buying shares represents a stake in the company regardless of how small the amount is.

The next time before your next share purchase, put yourself in the shoes of someone who is actually buying over the entire business. In this way, you will be forced to exert as much due diligence as you can. I will end off the article with a quote from Peter Lynch, “Investing without research is like playing stud poker and never looking at the cards.”

Disclosure: I have long positions in Suntec REIT and CapitaMall Trust.

Backed by a strong interest in investments, Peter's research spans across a range of industries, with his focus placed on companies listed on the SGX.

Please click here for more information about this author.

CapitaLand Mall Trust  2.640 +0.01 +0.38%   
Business: Co owns and invests in quality income-producing assets which are used, or predominantly used, for retail purposes primarily in Singapore.

Insight: Apr-19, 1Q19 gross revenue and NPI rose 10% and 11... Read More
Suntec REIT  1.880 -0.010 -0.53%   
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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