SUNTEC REAL ESTATE INV TRUST (SGX:T82U)
Suntec REIT - Active On Capital Recycling
- Suntec REIT (SGX:T82U) recently divested entire stake in 9 Penang Road.
- DPU accretive transactions with strata office sale and proposed acquisition in the UK.
- Aggregate leverage ratio to decline slightly to 43.8%.
Suntec REIT announced divestment of entire 30% interest in 9 Penang Road
- Suntec REIT announced in mid-Jun this year that it had successfully divested its entire 30% interest in the property located at 9 Penang Road to Haiyi Holdings Pte. Ltd. This is a 10-storey Grade A commercial building with a NLA of 399,044 sq ft. The agreed property value was S$295.5m (S$985.0m on a 100% basis), or S$2,468 psf NLA, and translated to an exit NPI yield of 3.3% (stabilised basis) for Suntec REIT, which we believe is an attractive exit price. The agreed property value represents a 5.7% premium over the asset’s latest valuation (S$931.8m on 100% basis) and is also 30.3% higher than the total development cost of S$756m.
Suntec REIT proposed divestment of strata office units and acquisition of an office building in London
- More recently, Suntec REIT entered into sale and purchase agreements to divest some of its strata units at Suntec City Office for S$197.0m (S$2,510 psf). This comes in at a premium of 8.9% over the independent valuation and translates to a tight NPI yield of 3.1%.
- The proceeds from this, together with that from the 9 Penang Road property divestment, would be partially recycled to the proposed acquisition of a Grade A office building with ancillary retail, known as The Minster Building (TMB) located in the City of London, for an agreed value of GBP353m (S$667.2m). TMB has a NLA of 293,398 sq ft, and has 968 years remaining for its land tenure. The property has a high committed occupancy of 96.7% with a long WALE of 12.3 years. If we take into account break clauses, the weighted average lease to break (WALB) would be 9.1 years.
- Suntec REIT managed to negotiate for a 2-year income guarantee for vacant spaces and retail leases and approximately a one-year income guarantee for the co-working lease at the property, which occupies ~13% of the building’s NLA. Including security deposits, ~2 years of rental income is covered for this co-working tenant. Overall NPI yield for the TMB acquisition is estimated to be 4.5%, and pro forma DPU accretion of ~3.6% is expected.
Pro forma aggregate leverage ratio to decline marginally to 43.8%
- Given the aforementioned capital recycling activities and also the issuance of S$150m of perpetual securities (rate of distribution of 4.25%) on 15 Jun, Suntec REIT’s pro forma aggregate leverage ratio is expected to decline from 44.4% (as at 31 Mar 2021) to 43.8%, which is still relatively high within the S-REITs universe. We factor these transactions in our model, and raise our FY21F and FY22F DPU forecasts for Suntec REIT by 0.5% and 3.0%, respectively.
- See
- We also apply a slight ESG discount (see below for more information) and this raises our cost of equity assumption from 7.0% to 7.2%. Our fair value estimate for Suntec REIT increases from S$1.56 to S$1.58.
OCBC Research Team
OCBC Investment Research
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https://www.iocbc.com/
2021-07-05
SGX Stock
Analyst Report
1.58
UP
1.56
