Suntec Reit raises $149m from placement

Aggregate leverage cut to 33.4% if all proceeds go towards debt repayment

SUNTEC Real Estate Investment Trust (Suntec Reit) yesterday raised net proceeds of about $149 million from a private placement to reduce debt, joining a host of other Reits that have made cash calls this year.

Suntec Reit called for a trading halt in the morning to announce the launch of the private placement. The Reit manager said that book-building closed within three hours. Suntec Reit managed to place out 128.5 million new units at $1.19 apiece.

The issue price was a 6.5 per cent discount to the volume weighted average price of $1.2724 per unit, based on trades done on Thursday. The new units represent around 7.7 per cent of the number of units in issue on Thursday.

According to Suntec Reit, the private placement was more than five times oversubscribed by existing unitholders and new investors. More than 60 institutional investors bagged the new units.

Assuming that all net proceeds go towards debt repayment, its aggregate leverage is expected to fall from 36.2 per cent at Sept 30 to 33.4 per cent.

Presentation slides on the Reit’s third-quarter 2009 results show that it had total debt of $1.877 billion at Sept 30. No debt will mature in FY2010, but around $532.5 million will be due in FY2011.

‘The proceeds from the private placement will strengthen Suntec Reit’s balance sheet and put us in a stronger position to take advantage of growth opportunities,’ said Yeo See Kiat, chief executive of Reit manager ARA Trust Management (Suntec).

In a report on Wednesday, OCBC Investment Research flagged a potential dilution risk in the counter. ‘With declining office income and book value risk, Suntec could decide to go the acquisition route in 2010,’ said analyst Meenal Kumar. ‘It is likely to keep aggregate portfolio gearing unchanged or lower, necessitating a combination of both equity and debt financing on any purchase.’

DMG & Partners analyst Jonathan Ng believes that Suntec Reit is expecting potential asset write-downs at year-end, and is preparing to keep its gearing below 40 per cent.

‘We expect Suntec to register a 7 per cent devaluation on its book in Q4 2009 to $5 billion, from the current $5.4 billion,’ Mr Ng said in a note yesterday. ‘There are unlikely to be further cash calls unless further asset write-downs are expected in H2 2010.’

He estimates that there will be a ‘mild’ dilution of 1.2 per cent, or 0.11 cents per unit, to the Reit’s distribution per unit in FY 2010.

Suntec Reit units closed unchanged at $1.28 each yesterday after resuming trading in the afternoon.

Several Reits, such as Ascendas Reit and Fortune Reit, have raised funds from the stock market this year. Analysts expect more cash calls next year, as the sector continues to pare debt or build capacity for acquisitions.

Source: Business Times, 12 Dec 2009