Suntec REIT unitholders should reject investment holding vehicle Aelios’ “unattractive” cash offer of $1.16 per unit, says Morningstar Equity Research analyst Xavier Lee.
The offer, announced on Dec 5, “does not reflect the REIT’s intrinsic value”, adds Lee, who thinks the offer price should be “at or above” his fair value estimate of $1.38 per unit.
“In any case, Suntec’s unit price has rallied above $1.16 after this announcement and investors can get more value selling in the open market as opposed to taking up this offer,” Lee adds in a Dec 6 note. Lee has kept his four-star rating on Suntec REIT against Morningstar’s five-tier scale.
Suntec REIT units had closed at $1.23 on Dec 6, the previous trading day. As at 10.16am, Suntec REIT units are trading 2 cents lower, or 1.63% down, at $1.21.
Lee’s note echoes RHB Bank Singapore’s Dec 6 report, where analysts recommended unitholders reject the cash offer. RHB’s target price for Suntec REIT is even higher than Morningstar’s, at $1.35.
RHB analysts called the offer “well below” their target price, though the $1.16 offer price has set a “share price floor” at current levels. The offer “severely undervalues” the REIT, whose net asset value is $2.07, according to RHB.
See also: Unitholders should reject Gordon and Celine Tang’s offer for Suntec REIT, says RHB
In addition, Suntec REIT will be a prime beneficiary of further rate cuts in 2025 due to its high gearing and low fixed hedge position, say RHB’s analysts.
Indeed, Suntec REIT will be the biggest beneficiary from the Monetary Authority of Singapore’s (MAS) rationalised leverage requirements, which provide “more buffer and financial flexibility”, says OCBC Investment Research in a Nov 29 note.
MAS announced on Nov 28 that S-REITs are now subject to a single aggregate leverage limit of 50% and a minimum interest coverage ratio (ICR) of 1.5 times. Suntec REIT’s aggregate leverage ratio of 42.3% as at Sept 30 is close to the previous limit of 45%.
See also: Suntec REIT biggest beneficiary from MAS’s ‘looser’ leverage, ICR rules: OCBC
OCBC says the move is a “marginal positive” for the sector, even though the majority of the S-REITs already have aggregate leverage ratios below 45% and ICRs “comfortably above” 2.5 times, even in the face of rising borrowing costs.
There will also be more breathing space for some S-REITs with significant overseas operations, especially those that have faced a spike in borrowing costs in US dollars and suffered declines in their income due to operational headwinds, says OCBC.
About the offerer
This offer was triggered after Aelios, an investment holding vehicle of Gordon Tang and his wife, crossed the 30% ownership threshold for making a mandatory general offer on Dec 5 when it bought 62.5 million units, or 2.14% of the REIT’s units in the market, at $1.16 each.
The offer is conditional upon the REIT substantial unitholders receiving more than 50% of units and will be adjusted for any distributions paid out during the offer period. The offeror says it plans to keep the REIT listed.
As of June 30, Suntec REIT owns a $12.2 billion portfolio of income-producing office and retail properties in Singapore, Australia and the UK. The majority of its assets, based on asset values, are offices (78%) and located in Singapore (69%).
Its flagship asset is Suntec City, one of Singapore’s largest integrated developments, consisting of offices, retail and a convention centre.
The trust is externally managed by ARA Trust Management (Suntec), a wholly-owned subsidiary of ESR Group that has a 9% stake in Suntec REIT.
