Suntec REIT: MBFC.

Suntec REIT is purchasing the one-third interest in Marina Bay Financial Centre (MBFC) held by Choicewide Group Limited, Cavell Limited and Hutchison Whampoa Properties Limited for S$1,495.8 million. This is hot on the heels of the announcement by K-REIT that it would purchase Keppel Land's one third interest in the same project. See slides here.

"The Manager is currently reviewing various financing options for the Acquisition to determine an optimal capital structure for the Acquisition. Details for the financing structure will be set out in the circular to be issued to Unitholders in due course, together with a notice of an extraordinary general meeting of Unitholders, for the purpose of seeking the approval of Unitholders for the Acquisition" and "The Acquisition is expected to improve the earnings and distributions for Unitholders". Read press release here

As per Suntec REIT's latest report, its current gearing is at 32.9%.  Total assets at S$5.275 billion.  Debt at S$1.733 billion. The REIT currently has 1,881,862,143 units in issue. See Financial Results for 3Q2010 here.

The net property income (NPI) of Suntec REIT is about S$200 million, annualised. NPI yield is 3.8%.  So, the acquisition at S$1,495.8m should at least have an annualised NPI of about S$60m (for a NPI yield of 4%) to make it NPI yield accretive.

Details as to the NPI of the acquisition has not been made available. However, it was made known that the acquisition will increase Suntec REIT’s office portfolio nett lettable area (NLA) from approximately 1.9 million sq ft to approximately 2.4 million sq ft. Using K-REIT's one third share of the same project as a guide which gives a NPI of S$37.396 million and if we include the income support of S$113.9 million payable over 60 months to be provided by the Vendor, giving us S$ 22.8m per year, we would get S$60.196m per year. So, the purchase looks to be NPI accretive.

It would be interesting to see what kind of financing structure would be decided upon. It is my assumption that Suntec REIT would issue rights to fund the purchase instead of having a share placement exercise if it is sincere about improving the distributions for unitholders. It could also gear up to 45% (on existing properties, excluding the proposed acquisition) and get about $600 million in loans which would reduce the size of any accompanying rights issue. Perhaps, in such an instance, they would have a 1 for 2 rights issue at about $1.00 per rights which would obtain an additional $909 million in funds. It could also gear up on the proposed acquisition (a 40% gearing would secure another $600 million in loans). This would further reduce the size of any accompanying rights issue.

Of course, this is all guesswork on my part. It is very late and I am half asleep. Let's wait for the circular.