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SINGAPORE - Suntec Real Estate Investment Trust, controlled by Hong Kong tycoon Li Ka-shing, said on Friday that it had raised $180 million (US$115 million) by selling new units just below the top end of its indicative price range.

The trust said in a statement that it sold the new units at $1.50 each in a private placement to institutional investors that was more than two times subscribed.

The trust, which is based on three commercial and office complexes in Singapore, had offered the units at $1.48-1.52 each. -- REUTERS

SUNTEC REIT LAUNCHES ACQUISITION PROGRAM TO INCREASE OFFICE EXPOSURE IN SUNTEC CITY OFFICE TOWERS

The Board of Directors of ARA Trust Management (Suntec) Limited (the “Manager”), as the manager of Suntec Real Estate Investment Trust (“Suntec REIT”) wishes to inform unitholders of Suntec REIT (“Unitholders”) that it has launched an acquisition programme to acquire strata office units in Suntec City Office Towers not presently owned by Suntec REIT (the “Acquisitions”). In relation to the programme, Suntec REIT has appointed Suntec City Development Pte Ltd as agent to source for the Acquisitions.

Suntec REIT currently owns approximately 1.24m sq ft of strata office units in Suntec City Office Towers. The remaining 1.05m sq ft of strata office units are owned by other subsidiary proprietors. The Acquisitions will allow Suntec REIT to increase its exposure to the strengthening Singapore office market and consolidate its core assets at Suntec City. As a key beneficiary of the robust Singapore office property market, the enlarged portfolio post-acquisitions will provide further potential for improved income and value through organic rental growth.

Extracts fm CS Report dated 11-Sep-06,

Growth strategies remain intact

• We recently met the management of Suntec REIT.
  
• Both its office towers at Suntec and Park Mall are seeing better occupancies and higher achieved rents. With close to 57% of its office leases due for renewal until FY08, SUNT is poised to benefit from the tight office market.
  
• Repositioning of Suntec Mall remains on track to fully complete by June 2007. Assuming full occupancies, the additional income from the enhancement works are estimated at ~S$13.6mn p.a. We see further upside from the repositioning of Park Mall expected from FY08 onwards.
  
• Given that SUNT has no ready pipeline of parent assets, the acquisition of Park Mall and Chijmes should be taken positively, although we expect the acquisition environment to be competitive.
  
• We raised our EPS by 7-13% for FY06-08 and target price to S$1.52, based on a FY07F required yield of 4.79%. This represents a 150bp premium over the 7-year bond yield. We maintain our OUTPERFORM rating.

Defensive with the highest sector yield

Results were in line. Suntec REIT reported its 3Q06 results with revenue coming in at S$43.9m (+2% QoQ) and with distributable income at S$24.4m, up +4% QoQ. Distributable income per unit (DPU) grew at similar pace of 3.9% to 1.88 cents. The improvement was mainly due to better occupancies of its office space and its results are in line with market expectations.

Outlook remains good. Over the next 12 months, we expect Suntec to continue to benefit from the improving office and retail market. Its office portfolio has been seeing improving occupancies from 92.3% in 1Q06, to 93.7% in 2Q06 and now stands at 96.2%. But more importantly, with 25% and 29% of Suntec’s office space up for renewal in 2007 and 2008 respectively, it should be able to benefit from the continual office sector recovery. As for Suntec’s retail space, the story is very much the same. Suntec’s retail space is fully occupied and it will see about 35% and 31% of its retail leases up for renewal in 2007 and 2008 respectively, providing organic growth to this segment.

Suntec to benefit from Marina Bay rejuvenation. Suntec is also likely to be one of the key beneficiaries from the expected rejuvenation of the Marina Bay area. Some of these developments include the Marina Integrated Resort (MIR), the new Business Financial Centre as well as the proposed pedestrian bridge connecting MIR to the Suntec area. Also by 2010, the Circle line MRT station adjacent to Suntec City should be operational and should help to bring the much needed MRT transport system to the area.

Maintain BUY. At present trading range unit price, we continue to like Suntec REIT for its defensive nature. This is reflected in its low price-tobook of about 1.04x and high DPU yield of over 6.4% for FY07. At our FY07 DPU forecast, Suntec provides the highest yield among comparable Singapore retail asset REITs. We see little downside risks and maintain our BUY rating with a fair value of S$1.29.

Extracts fm UBS Report dated 27-Jul-06,

Q306 Result Does Not Disappoint

• DPU announced for Q306 is in line with our forecast - We recently upgraded Suntec REIT to Buy 1 due to expected DPU of 7.1c for FY9/2006E. The results are in line with these forecast, giving 6% yield. This is attractive compared to prime office and retail yields which are currently at around 4% and 5% respectively.
  
• Pro-active asset enhancement initiatives bearing fruit - The managers have fully leased out the new food hub Tasty Treatz, which would contribute S$3m revenue annually. The multi-tenanted digital e-hub is scheduled to open in Oct 2006. The next steps include reconfiguring the area around the link to the new MRT station into a fashion precinct, and tenant remixing for the whole mall to introduce more high-rental fashion tenants.
  
• Direct beneficiary of office reflation and Marina Bay - Suntec City will benefit from the rapid reflation in the prime office market. There will not be new Grade A office space in the CBD area until the Business and Financial Centre (BFC) site is ready in 2010. Marina Bay will be transformed into a tourist destination in the next 4 years, with new attractions and Marina Bay Sands. Visitors to Marina Bay Sands are likely to spillover to Suntec City.
  
• Valuation: Buy 1, PT of S$1.36 - We reiterate our price target of S$1.36, which is derived from DCF of the distribution income.

The assets, meant to be sold to Suntec Reit last year, could be worth $950m to $1b now

(SINGAPORE) City Developments Ltd (CDL) may have found a new buyer for the mixed bag of properties it failed to sell to Suntec Real Estate Investment Trust last year. This time, the potential buyer is said to be an entity linked to Australia's Macquarie Bank, with some sources tipping the party as a property fund of Macquarie Global Property Advisors (MGPA). Sources say CDL is locked in an exclusivity period with the Macquarie entity, while the latter does due diligence on the portfolio.

CDL agreed last year to sell up to 99-year leasehold interests in the portfolio of 11 properties for a total of $788 million, with CDL retaining the reversionary freehold or 999-year leasehold interests to eight of the properties. Market watchers reckon the portfolio could be worth $950 million to $1 billion today, given the substantial pick-up in office values over the past year.

The 11 properties include four entire buildings, mostly offices - Fuji Xerox Towers at Anson Road, Plaza By The Park at Bras Basah Road, City House at Robinson Road, and Central Mall Office Tower at Magazine Road near the Singapore River. The portfolio also includes strata units in other buildings - The Arcade at Collyer Quay, Katong Shopping Centre, 470 North Bridge Road, Fortune Centre in Middle Road, and Golden Mile Complex along Beach Road. Two car parks - at People's Park Centre in Chinatown and Queensway Shopping Centre - were also part of the portfolio that Suntec Reit was to have bought last year. Sources suggest the final list of assets Macquarie could buy may change, depending on negotiations.

Industry observers suggest the fund that MGPA could use to buy the CDL portfolio may be the MGP Fund II, for which MGPA raised US$1.3 billion in equity in September last year. In May this year, MGPA managing director Simon Treacy told Reuters the fund would buy more properties in the next couple of months in Asian cities, including Singapore. 'We don't get excited by shiny buildings. We like an ugly building in a good street,' Mr Treacy said, adding that MGPA aims for annual returns of 20-25 per cent by refurbishing and redeve loping buildings.

Under last year's proposed deal with Suntec Reit, CDL was to sell only the 99-year leasehold interest of the freehold and 999-year leasehold properties in the portfolio - namely, City House, Fuji Xerox Towers, Plaza by the Park, Central Mall Office Tower, The Arcade, Katong Shopping Centre, 470 North Bridge Road, and Queensway Shopping Centre Car Park. Market watchers suggested then that this was to capture lower prices for the properties and thereby boost the yields on them for the proposed buyer, Suntec Reit. Another feature incorporated in the transaction to boost yield in the short term - deferred payment of units in Suntec Reit to vendor CDL equivalent to almost 10 per cent of the purchase price - came under scrutiny after a speech by Temasek Holdings chief executive Ho Ching warning investors of some of the potential pitfalls of investing in the Reit market, including deferred payment schemes. Ms Ho did not name any particular Reit. Suntec said in October last year it was calling off the deal, citing delays in obtaining regulatory approvals.

On hindsight, that may not have been such a bad thing for CDL, since the value of the properties has appreciated over the past year with tightening office supply and an improved overall business outlook.

Extracts fm Kim Eng Report dated 27-Apr-06, 

• Sterling set of results - Q2 distributable income of $23.5m (DPU: 1.81cts) was 20% above forecast while revenue of $43.1m came in 29% ahead of projections. For the 1H06, distribution income totalled $45.7m (DPU: 3.53cts). Driving earnings growth was the twin engines of rising occupancy and higher rental rates at flagship Suntec City and new contributions from recently acquired Park Mall and CHIJMES. The two latter assets added $5.3m in revenue during the quarter.
  
• Organic improvement boosting bottomline - Office take up rose to a high of 94% vs 79% a year ago while achieved rental levels ranged between $4.5-6psf/mth. In 1H06, the group renewed/leased 0.16msf of office space. Retail space was well sought after with occupancy standing at 98.6%. There was strong double digit rent increases of 9-19% over preceeding levels for new and renewal retail leases. The improvement in revenue at Park Mall and CHIJMES boosted property returns to 4.9-5.3% compared to entry yields of 4.8-5%.
  
• Benefiting from rising rental trend - Demand for office space continues to remain strong and the rising rental rate trend should translate to positive rental reversions from 2H06. Suntec would be able to benefit from this upswing as an estimated 25% and 28% of office NLA are due for renewals in FY07 and FY08.
  
• Asset enhancement initiatives to drive medium term growth - Apart from rental growth, asset enhancement programmes at Suntec City such as Tasty Treatz, Digital World, Youth Zone and the proposed new Fashion Zone should underpin the strength in retail rents. These initiatives, affecting an estimated 84000sf of NLA, are anticipated to add $11m of new revenue (6% of total topline) when completed progressively by 2H07.
  
• Raising earnings estimates and price target -  FY06 and FY07 DPU estimates raised to 7.3cts and 8cts, translating to yield of 5.6% and 6.1% respectively. The stock is currently trading at 1.2x P/Book NAV indicating that little acquisition prospect have been factored into share price. Our revised DCF value of $1.43, which is based on existing portfolio, shows a potential 10% upside from here. Maintain Buy.

Extracts fm DMG Report dated 27-Apr-06,

21% increase in Net Income

Suntec REIT registered a YoY improvement of 21.4% in net income and 35.2% in gross revenue. The improvement is due to revenue contributions from Park Mall and Chijmes. DPU for 1Q06 is 1.81 cents, which is in line with our forecast. The office and retail sector rents and occupancies are improving, in view of limited office space and positive consumer sentiments. We maintain BUY for the yield of 5.6%.

(I) Results

• Suntec REIT reported a YoY 21.4% increase in net income on the back of a 35.2% increase in gross revenue. The improvement is due to additional revenue from Park Mall and Chijmes. Rental in Suntec City Mall grew by 4% QoQ from gains in advertising and promotion income and higher turnover rents.
  
• Management declared a DPU of 1.81 cents for 1Q06, which works out to 7.34 cents on an annualised basis. This is in line with our DPU forcast of 7.03 cents, and is also 19.8% higher than IPO forecast. The payment date is on 30 May 06.
  
• Office occupancy in Suntec Office Towers reach a high of 94.4%. The REIT’s office portfolio reached 93.7% at 31 Mar 06.
  
• NAV at end Mar 06 is $1.068, up from $1.059 at end Sept 05.

(II) Comparison with other REITs

• Suntec REIT’s yield at 5.6% is among the highest among the REITs. At $1.32, the stock is trading at 24% premium to its NAV of $1.07.

(III) Updates and Outlook

• The office revenue is set to improve with limited office space within the next 3 years, with pipeline supply average 0.72m sf per annum, and about 1.54m sf adding on to the supply in 2006. According to a property consultant, the prime office yield rose from 4.5% last quarter to 4.7% in 1Q06. This trend is expected to continue.
  
• The retail occupancies and rents have increased due to positive sentiment and increase in tourist arrivals, which rose 14.9% YoY for Jan 06. Retail sales index increased 9.8% over the same period.
  
• We believe that improving retail and office rental will enhance the earnings of Suntec REIT.

(IV) Recommendation

• Management is confident of delivering projected DPU of 6.13 cents FY06. We increase earnings estimate to $100.8m to reflect Chijmes’ contribution to the portfolio. We maintain BUY for the yield.