The sale, which was completed late Wednesday through a placement arranged by Citi, saw good interest from institutional investors and was priced at a tight 0.97% discount to that dayÆs close. Even so, SuntecÆs share price dropped 4.4% in the wake of the sale yesterday. To be fair though, the decline came on a day that saw most of the Singapore Reit sector struggle with Frasers Centrepoint Trust down 3.9%, CapitaCommercial Trust off 3.3% and CapitaMall Trust finishing 2.0% lower.
Some observers suggested retail investors in particular may have been spooked by LeeÆs exit from the Reit and decided to ease their own holdings û especially since the market was already under pressure because of rising bond yields in the US. But sector analysts say one shouldnÆt read too much into the sale. Most likely Lee was just looking to make some shifts to his investment portfolio and took the opportunity to cash in his gains as the Reit was trading near its record highs, they say.
Before yesterdayÆs drop, Suntec was up about 20% so far this year compared with an 18.5% gain in the benchmark Straits Times index and was trading only 1.9% below its closing high of S$2.10 from June 13. The unit price had more than doubled from the IPO price of S$1.00.
Lee sold all his 75.14 million shares at the top of the indicated price range of S$1.995 to S$2.04. At the bottom of that range, the discount to WednesdayÆs close of S$2.06 would have been 3.16%, but sources say good demand from some of SuntecÆs existing unit holders gave the placement good momentum and helped push the price to the top.
About 20 accounts were said to have come into the book. US-based investors were given a chance to have a look, but in the end all the buyers were from Asia.
What made the sale extra challenging for the market was the fact that Lee, who is the chairman of Henderson Land Development but has in recent years made a name for himself as one of Hong KongÆs major portfolio investors through a number of privately-owned vehicles, was part of the consortium of 12 Hong Kong developers who owned the Suntec property before it went public as a Reit. At the time of the IPO in December 2004, the consortium sold the property to the Reit in return for units (and some cash), which gave them a combined 35.5% of the listed trust post green-shoe.
In an attempt to boost the upfront dividend yield per share in the early years, part of the units to be issued to the original sponsors as payment were deferred, however. These units will be issued in six monthly instalments starting from 3.5 years after the IPO (i.e. from June 2008) and on a semi-annual basis thereafter. This means that Lee, who until now hadnÆt sold any of his Suntec units since the IPO, is due to receive more units starting from next year.
Other members of the consortium include Cheung Kong HoldingsÆ Chairman Li Ka-shing, New World Development Chairman Cheng Yu-tung, and Ren Ren Shaw of the Shaw Brothers entertainment group.
Looking beyond the current weakness, analysts are generally positive on Suntec Reit because of the strong fundamentals of the Singapore office market.
ôThe strength in the rental market is reflected in asset valuations and on an asset valuation basis Suntec is below our sum of the parts value,ö says Anthony Darwell, a property analyst with Nomura Securities who has a buy rating on the trust. ôThere is inevitably short-term volatility in all stocks, but in terms of the directional trend of Suntec Reit and the directional trend of Reits exposed to the office market, we are quite positive.ö
Whatever LeeÆs motivation, his exit from the trust may indirectly have contributed to yesterdayÆs decline in the unit price, however, as Suntec was already in focus following news a couple of weeks ago that the Singapore takeovers code will be extended to Reits as well. This means that anyone acquiring more than 30% of a Reit will have to make a general offer for the rest of the trust as well.
Suntec has come under the spotlight because its sponsors currently own only about 23% of the trust (prior to LeeÆs sale), which means a possible suitor could take control without having to cross the 30% mark. Most Reit sponsors tend to keep between 30% and 50%.
ôThe stock has been in focus primarily because of the quality of its portfolio in combination with its above average free-float,ö notes one Singapore-based analyst. ôSo the register isnÆt has secure as on some of the other Singapore Reits and this sell-down increases the free-float even further.ö
SuntecÆs original assets comprise a number of office and retail properties in Suntec City, which is the largest integrated commercial development in Singapore and includes the cityÆs largest shopping mall. Since listing it has acquired two more retail complexes in the form of Park Mall and the historical landmark Chijmes.
According to its website, the trust had total assets of S$3.9 billion ($2.5 billion) as of the end of March this year and had delivered a total return of 112% to its unit holders since the IPO.
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