Offer price is a 44% discount to the trust&rsquo s net asset value per unit, notes the research house

 

RHB has recommended unitholders of Suntec Real Estate Investment Trust (Reit) to reject the mandatory conditional cash offer for its units.

 

Property tycoon Gordon Tang and his wife Celine on Thursday (Dec 5) had launched an offer to acquire all the units of Suntec Reit at S$1.16 per unit in cash.

 

RHB believes the offer price &ldquo severely undervalues the Reit, as it reflects a 44 per cent discount to its net asset value (per unit) of S$2.07&rdquo . It is also below the research house&rsquo s target price of S$1.35 on the counter.

 

But RHB said in a note on Friday that the offer price will set a unit price floor at current levels. It is also optimistic that the Reit will benefit from further rate cuts in 2025 due to its &ldquo high gearing and low fixed hedge position&rdquo .

 

The research house maintained its &ldquo buy&rdquo call and its target price on the counter.

 

As at Sep 30, Suntec Reit has an aggregate leverage ratio of 42.3 per cent. Its weighted average debt to maturity was 3.07 years, and total fixed interest rate borrowings stood at about 61 per cent as at end-September.

Tang and his wife made the offer through their investment holding company Aelios. The offer was triggered after Aelios on Thursday acquired 62.5 million units, representing about 2.1 per cent of the Reit&rsquo s total units.

 

This brought its total deemed interest in the trust to 31.5 per cent, amounting to 918.7 million units. Aelios was previously deemed to have a 29.3 per cent stake in Suntec Reit.

 

Aelios said the offer was made solely to comply with the takeover code, and it intends to maintain the listing status of the Reit on the Singapore Exchange.

 

The offer will turn unconditional once Aelios receives 50 per cent or more of Suntec Reit&rsquo s total units.

Bid is triggered after they acquire more than 30% of Reit&rsquo s units

 

PROPERTY tycoon Gordon Tang and his wife Celine have made a mandatory conditional cash offer to acquire all the units of Suntec Real Estate Investment Trust : T82U +0.86% (Reit) at S$1.16 per unit in cash. 

 

The offer was made through their investment holding company Aelios. It was formed for the undertaking of the offer and acquisition of the Reit&rsquo s units, said the company in a bourse filing on Thursday (Dec 5).

 

The offer was triggered after Aelios acquired 62.5 million units, about 2.1 per cent of the Reit&rsquo s total units, on Thursday by way of on-market transactions at S$1.16 apiece. This brought its total deemed interest in the trust to 31.5 per cent, amounting to 918.7 million units. 

 

Aelios was previously deemed to have a 29.3 per cent stake in Suntec Reit. 

 

Aelios said that the offer was made solely to comply with Rule 14.1 of the Take-over Code, by which any entity controlling more than 30 per cent of a Reit must make a mandatory general offer to acquire its remaining units. 

 

The company added that it intends to maintain the listing status of Suntec Reit on the Singapore Exchange, following the completion of the offer. 

 

The offer will turn unconditional once Aelios receives 50 per cent or more of Suntec Reit&rsquo s total units. 

Aelios, an investment holding company, was established for the purpose of undertaking the offer and the acquisition of the REIT&rsquo s units. 

Per rule 14.1 of the takeover code, where a mandatory offer is triggered when an offeror acquires 30% or more of the units in a REIT, Aelios is required to make a mandatory conditional cash offer for all the shares it does not already own in Suntec REIT. 

 

On Dec 5, Aelios acquired an aggregate of 62,541,700 units via the market for a cash consideration of $1.16 per unit, which represents approximately 2.14% of the total units of the REIT. 

Prior to the transaction, Aelios owned an aggregate of 856,201,901 units, representing a stake of approximately 29.31%. 

Following the transaction, Aelios owns approximately 31.45% of the total number of issued units in Suntec REIT. 

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The offer will be conditional upon Aelios receiving 50% or more of the units in Suntec REIT. 

The offer document is expected to follow no later than 21 days from the date of announcement. 

Units in Suntec REIT closed 1 cent higher, or up 0.86%, at $1.17 on Dec 5.

 

Suntec REIT reported a distribution per unit (DPU) from operations of 1.58 cents in 3QFY2024 ended Sepmteber, down by 0.9% y-o-y. With the absence of capital distribution in 3QFY2024, DPU also declined by 11.2% y-o-y. 

 

This came on the back of vacancies at 55 Currie Street in Australia and The Minster Building in London. 

 

For the same period, the REIT&rsquo s distributable income from operations stood at $46.2 million, which was in line with 3QFY2023. 

That said, operating performance from the Singapore Office and Retail portfolios continued to strengthen in 3QFY2024, according to the REIT. Occupancy at 55 Currie Street and Suntec City Mall also saw quarter-on-quarter improvement within the same period. 

 

Meanwhile, the REIT&rsquo s gross revenue fell by 4.6% y-o-y to $117.7 million, while net property income stood at $79.8 million, down by 5.7% y-o-y. This was due to lower contributions from Suntec Convention, 55 Currie Street and The Minster Building in London. 

 

As at Sept 30, the REIT&rsquo s portfolio committed occupancy stood at 95.6% for the REIT&rsquo s office portfolio and 97.7% for its retail portfolio. Weighted average lease expiry (WALE) stood at 3.9 years for the office portfolio and 2.4 years for the retail portfolio.

 

As at the same period, adjusted interest coverage ratio (ICR) stood at 1.9 times, in line with the previous quarter. 

 

Chong Kee Hiong, CEO of the manager, says, &ldquo The Singapore office and retail portfolios continued to achieve strong occupancies and robust rent reversions. While Melbourne and Adelaide market conditions remain weak, leasing has gained traction as occupancy at 55 Currie Street and Southgate Complex improved.&rdquo

 

On the environmental, social and governance (ESG) front, Suntec REIT has also attained the highest GRESB 5 Star rating for the fifth consecutive year since its inaugural participation in 2020. 

 

Chong adds: &ldquo Suntec REIT&rsquo s continual advancement in the areas of ESG reflects our commitment to growing our business responsibly. We remain focused on strengthening the operating performance of our assets and will explore opportunities to divest our mature assets while delivering long-term value to our stakeholders.&rdquo

 

Looking ahead, the REIT manager expects to see revenue from Singapore offices &ldquo continue to strengthen, underpinned by strong occupancies and past quarters of robust rent reversions&rdquo .

 

Strong tenant sales growth and rental reversions are expected to remain strong, while maintaining Suntec City Malls &ldquo robust&rdquo revenue. The REIT manager also expects revenue from Suntec City Mall to improve due to higher occupancy, rent and revenue from marketing communications.

 

In Australia, CBD market occupancy across Melbourne and Adelaide are expected to decline amid elevated incentive levels. Lower property valuation is also expected due to expanding capitalisation rates. Revenue for the REIT&rsquo s Australian portfolio is likely to decline due to the leasing downtime at 55 Currie Street and Southgate Complex.

 

Occupancy and rental growth in Central London are expected to improve due to tight supply and an increase in office utilisation. According to the REIT manager, good quality office assets in good quality office assets in prime locations remain well sought after. Despite this, revenue for the UK portfolio is likely to be impacted by the The Minster Building although it is expected to be fully leased by the end of 2024.