Suntec Real Estate Investment Trust has raised S$429 million ($325 million) from a placement of new units, which will be used as part payment for an earlier announced acquisition. The offering attracted strong investor interest and priced close to the top end of the offering range for a 4.2% discount to the latest close.
The unit price also held up well in the aftermarket, falling just one cent yesterday and closing 3.6% above the placement price.
The fundraising may bring some relief to the Reit, which has seen its unit price drop 8% since the S$1.4 billion ($1.06 billion) acquisition was announced on October 26. Suntec has referred to the purchase, which comprises a one-third stake in Marina Bay Financial Centre Towers 1 and 2, the Marina Bay Link Mall and 695 car park spaces as a “strategic addition” to its existing portfolio in Singapore’s central business district, and has noted that it is expected to improve earnings and distributions for its unitholders.
The importance given to getting the right investors on board was evident by the fact that Suntec chose to suspend its units from trading on Monday and launch the placement at 10am in the morning, rather than to launch and complete it after the market close, as is common practice.
And, according to a source, the deal attracted high-quality demand with the majority of the orders coming from long-only funds and real estate specialists. There was also good demand from existing shareholders. The deal was covered in two hours, but kept open until 5pm Singapore time. At close, it was about three times subscribed, and given the timing – during the Singapore trading day – most of the 120 investors were Asia-based.
The momentum created by the strong demand allowed the bookrunners to guide investors towards removing their price limits and the final price could have been fixed at the top of the range. However, the management decided to leave the last cent on the table for investors to support the aftermarket performance.
Hence, the units were sold at S$1.37 after being offered in a range between S$1.34 and S$1.38, representing a discount of 3.5% to 6.3% versus the Friday close, or 2.4% to 5.2% after adjusting for an upcoming dividend of 1.677 Singapore cents per unit that the buyers of the new units are not entitled to. The final discount versus Friday’s dividend-adjusted close was just 3%.
The source noted that the tight pricing was particularly encouraging in light of the fact that several equity transactions have had to be pulled or postponed in the past week due to the volatile markets. Investors are also starting to wind down for the year-end holidays.
Part of the attraction would have been the high dividend yield offered by Suntec. In a report published following the placement, analysts at Citi projected a yield of close to 7% in fiscal 2011, which compares to 5% for CapitaCommerical Trust and 5.4% for K-Reit. Like Suntec, CCT and K-Reit are also focused on office and retail properties in Singapore.
The placement of 313 million new units accounts for 16.9% of the existing share capital and was handled by Citi, DBS and Standard Chartered.
Suntec’s total assets under management will increase to approximately S$6.8 billion as a result of the Marina Bay acquisition and its office portfolio will expand to a net lettable area of approximately 2.4 million square foot from 1.9 million sq ft at present.
The Marina Bay Financial Centre is located in the same area as the new Marina Bay Sands casino and integrated resort and will be served by a new downtown underground line that is expected to open in 2013. The office towers had a committed occupancy of approximately 96% as of the end of September, including high-profile tenants such as American Express, Barclays Capital, BHP Billiton, Macquarie, Nomura and Standard Chartered Bank.
The total consideration for the Marina Bay Assets is approximately S$1.5 billion, but the seller, Choicewide Group, will pay S$113.9 million of income support over the next 60 months, which will reduce the effective price to S$1.4 billion, or S$2,400 per sq ft. The acquisition is targeted for completion by the end of this year.