Sells Park Mall for redevelopment
- Sells Park Mall for redevelopment by a 35%/35%/30% JV, with Suntec REIT owning 30%.
- Proceeds for debt repayment. We estimate FY16 DPU impact of -4.7%, though management guides that it may use proceeds to mitigate DPU dip.
- Maintain HOLD for lack of near-term catalysts & SGD1.89 DDM TP (COE 7.7%, TG 2.0%).
What’s New
- Suntec REIT is divesting Park Mall, a commercial and retail development on the fringes of Orchard Road, for redevelopment at its latest valuation of SGD411.8m.
- To be completed by 3Q15, net proceeds could amount to SGD408.0m.
- The property will be redeveloped by a JV with Singapore-listed SingHaiYi and another partner related to Mr. Gordon Tang, who is the controlling shareholder of SingHaiYi.
- Suntec REIT will hold 30% of the JV, with its two partners each holding 35%.
- The partners have committed to providing capital of up to SGD384.0m and will fund the balance development cost with debt. They will also top up the balance of 53 years on the property’s lease to 99 years.
- After redevelopment, Suntec REIT will be able to acquire one of the two resulting office towers with rights of first refusal to the retail podium.
- Proceeds will be used for debt repayment and may be used to mitigate the dip in DPU.
What’s Our View
- We think the loss of income from Park Mall will be offset by interest savings from the cash proceeds.
- We estimate that FY16 NPI could be shaved by SGD19.5m.
- After deducting Suntec REIT's maximum pro-rata share of committed capital or SGD115.2m from its net divestment proceeds of SGD408.0m, we estimate that SGD292.8m will be available for debt repayment. This should save the REIT about SGD7.4m in annual interest costs.
- All in all, we estimate a DPU impact of -4.7% for FY16. As Park Mall will be divested at its latest valuation, the NAV impact is minimal.
(Derrick Heng, CFA)
Source: http://www.maybank-ke.com.sg
