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Placement is to fund purchase of strata offices at Suntec City

SUNTEC Real Estate Investment Trust, controlled by Hong Kong tycoon Li Ka-shing, plans to raise up to $182.4 million for expansion by selling new units in the trust to investors.

In a statement released yesterday, ARA Trust Management (Suntec), which manages the Suntec Reit, said the property trust would sell 120 million Suntec units in a private placement with an issue price of between $1.48 and $1.52 per new unit, or a 1.9 to 4.5 per cent discount to yesterday’s $1.55 closing price.

ARA Trust’s announcement came after its chief executive Yeo See Kiat confirmed earlier in the day a Reuters report on the placement.

ARA Trust said the placement is to fund the first phase of Suntec Reit’s programme to acquire office strata units in Suntec City not presently owned by it.

The deal, of which Citigroup Global Markets Singapore is the financial adviser, lead manager and underwriter, is expected to be priced by today. This probably explains Suntec’s request for a trading halt today.

Click here for Suntec Reit’s FY2006 financial statements

Suntec Reit is expanding as Singapore’s office rents recover from their lowest in a decade and are expected to surpass their 1996 peak, reaching $11 per square foot by 2008, according to UBS AG’s estimates.

Suntec, based on three commercial and office complexes in Singapore, yesterday said it would pay investors $24.8 million in distributable income for its July 1-Sept 30 fourth quarter. The trust said investors would receive 1.91 Singapore cents per unit for Q4.

‘The office market is enjoying a strong growth momentum underpinned by sustained demand amid tight supply, translating into further rental growth in the third quarter of 2006,’ the company said.

Suntec Reit said gross office revenue rose to $15.5 million, exceeding its forecast by $3.7 million. Gross retail revenue increased to $29.4 million, also surpassing forecast by $6.7 million.

Source : Business Times - 27 Oct 2006

THE surging cost of space on Orchard Road has pushed Singapore’s famous retail row up one place to 13th in the league table of the world’s most expensive shopping locations.

Its move has been driven by a rental boom, with prime ground floor space rising 13.2 per cent over the past year to $39 per sq ft (psf) a month or US$292 (S$462) a year, said property consultancy Cushman & Wakefield, which compiles the annual survey.

The rent boom has, in turn, been fuelled by increased spending and a rise in tourist numbers, said Mr Donald Han, the firm’s Singapore managing director.

‘International brands and local retailers are all jostling for a prime presence in Singapore’s key retail hub,’ he said. ‘With the limited supply in Orchard Road, there is only direction rents can go - up.’

While Orchard Road has moved up, it remains far behind the top six. New York’s Fifth Avenue is still the costliest street on which to rent shopping space, with rents at US$1,350 psf a year, followed by Hong Kong’s Causeway Bay at US$1,134 psf.

Avenue des Champs Elysees in Paris is third, followed by London’s New Bond Street, Tokyo’s Ginza district and Dublin’s Grafton Street.

Wanfujing Street in Beijing remains at 20, while Khan Market in New Delhi climbed from 41st to 24th, with rents at US$180 psf a year.

The report tracks retail rents in the world’s top 233 shopping locations across 47 countries.

Source : Business Times - 26 Oct 2006

They issue buy calls on counters like Robinson, Metro, Sincere Watch

WITH the macro-economy performing strongly, analysts are now saying that the outlook is just as rosy for the retail sector.

>From department stores like the Robinsons group and Metro to luxury watch businesses like Sincere Watch, a quick check found that ‘buy’ recommendations have also been issued recently on a range of retail counters, which have seen their prices rising in the past year, some by more than 60 per cent.

Government estimates released on Oct 10 showed that the economy had grown a surprisingly strong 7.1 per cent year-on-year in the third quarter, and looks set to carry the momentum through to the end of the year.

The services sector alone expanded 6.6 per cent in Q3. While no exact details for the retail component were available beyond that it too had recorded faster growth, analysts are confident that sentiments in retail will remain buoyant.

Singapore Retailers Association executive director Lau Chuen Wei, for one, feels that consumer confidence is up.

With unemployment rates at a low and economic growth at a high, ‘consumer confidence seems to be on the rise, and this is indeed good news for the retail industry, the performance of which is very closely linked to consumer confidence,’ she observed.

Mavis Seow, director of retail services at CB Richard Ellis, notes that rent levels have been rising and brands are still expanding, with retailers still looking for space.

‘Across the board in various sectors, from health and fitness to fashion, really, it’s looking quite positive at the moment,’ she told BT.

With more buyers snapping up more homes and residential prices moving up, there could even be a trickle-down effect from the property sector to the home furnishings trade, she reckoned.

The opening three weekends ago of Vivocity, Singapore’s biggest mall yet, has injected further buzz into the retail scene, adding some 300 stores, with 1.04 million sq ft of shopping space, offering new products and new fashion labels.

But there is a word of caution from UOB Kay Hian research head Yang Sy Jian, who pointed out that higher sales volume does not mean higher profits per item.

‘The discounts during sales periods mean lower margins, which would not be reflected in the sales volume figures,’ he said.

Ms Lau said: ‘There are many factors that contribute to economic performance measurements. These might include interest rates, rental rates,’ she said.

‘Whilst these contribute to the positive performance of the financial and property sectors, they have a reverse effect on the retail industry for whom these represent escalating costs. If sales revenue does not escalate in tandem, then margins will be at stake.’

Still, a number of analysts are favouring retailers such as Robinson and FJ Benjamin which are launching new stores and labels in Vivocity. DBS Vickers issued a buy call for Robinson on Aug 24, anticipating revenue boost from the group’s three new stores at Vivocity, including a 13,000 sq ft Marks & Spencer.

Fashion retailer FJ Benjamin, which has brought in new labels Gap and Banana Republic, received a ‘buy’ recommendation from Kim Eng on Sept 28.

Both counters have seen their stock price climb in the past year, with FJ Benjamin rising 65 per cent to close at 54.5 cents yesterday.

On the luxury end, Sincere Watch received a recent ‘buy’ call from Kim Eng, which said in an Oct 12 report that ‘the luxury market in Singapore remains upbeat with rising consumer interest in fine jewellery and watches’.

Indeed, Philip Securities analyst Brandon Ng noted the growing ranks of millionaires in Singapore. According to a Merrill Lynch-Capgemini survey, the number of this group expanded 13.4 per cent last year to 55,000.

Source : Business Times - 26 Oct 2006

They buy, refurbish and resell industrial property to Reits

Savvy businessmen and industrialists are fast becoming a new class of investors as they are finding that there is more money to be made in selling property than in toiling over a lathe.

DTZ Debenham Tie Leung director and auctioneer Shaun Poh says some people are snapping up good industrial properties at auctions, refurbishing them, finding tenants, securing leases, then selling them to industrial Reits for a neat profit.

Up to 10 individuals or companies are involved, he says. It is not a large number but ‘before Ascendas Reit, there was no such thing as an industrial property investor’.

Some of the bigger players include Crescendas Group, Trivec and Steel Industries.

In July, Trivec sold a building in Joo Seng Road to Mapletree Logistics Trust (MLT) for $13 million. It paid about $3.8 million for it in August 2005. In May, Crescendas sold a building in Tai Seng Drive to MLT for about $38 million. It paid $7.18 million for it in January 2005.

Although the profits look very attractive, Mr Poh points out that the buildings are usually in very ’shabby’ condition so investors could spend between $3 million and $5 million retrofitting them.

More important is that these investors are also industrialists, who can guarantee leases of up to five years - an important factor in a sale and leaseback deal with a Reit. The tenants come from the investors’ subsidiary businesses or through their industry network.

The value of industrial property has been rising. According to a report by DTZ Research, $141.55 million of properties were auctioned by the four major auction houses in Q3 2006 - a 137 per cent year-on-year increase. The transaction value of industrial properties more than doubled to $20.06 million compared with Q3 2005, although there was no marked increased in the number of industrial properties sold.

DTZ Research analyst Serina Wong believes this is due to increased sales of larger properties. ‘In Q3 2006, almost all the industrial properties sold in the auction market had floor areas between 35,000 and 95,000 sq ft,’ she says. Almost all were mortgagee sales.

Reits specifically look for large properties. Among the industrial properties sold at auctions recently, Mr Poh estimates that at least three could be ‘Reit plays’. The highest price paid - $5.01 million or $63 psf - was for a choice property in Genting Lane that is likely to be resold to a Reit.

What do industrial Reits look for in a property? It must have about 100,000 sq ft of floor area and a minimum 40-year lease, and the seller must also have market credibility as securing leases is crucial for Reits.

Many business folded during the last economic slowdown, resulting in banks foreclosing on properties, says Mr Poh. ‘A lot of banks are now willing to cut losses through mortgagee sales.’

There still is, of course, demand from traditional industrialists. Mr Poh says a property in Sungei Kadut was hotly contested during a recent auction - bidding started at $2.5 million and the property was sold for $3.5 million, a 40 per cent premium.

DTZ Research says the average price of industrial properties sold at auctions increased in Q3 2006 to an average of $3.34 million, up 367 per cent quarter-on-quarter and 259 per cent year-on-year.

Source : Business Times - 25 Oct 2006

INDUSTRIAL property fund Ascendas Real Estate Investment Trust (A-Reit) has bought two properties from Super Coffeemix for $49 million.

It will pay $33.5 million for Super Industrial Building at No. 2 Senoko South Road and $15.5 million for 26 Senoko Way.

Both properties are light industrial buildings located within the designated food zone in Woodlands East Industrial Estate.

A-Reit will lease the assets back to the mainboard-listed 3-in-1 instant coffee-maker for seven years with an option to renew for an additional seven years, it said in a statement yesterday.

The fund will also pay $820,000 in acquisition costs.

The deal is expected to increase A-Reit’s distributable income per unit (DPU), the fund said.

Assuming the acquisition had been made earlier and the properties held for the whole financial year ended March 31 this year, it would have boosted A-Reit’s DPU by 0.04 cent for that time, said the trust.

Its DPU for the second quarter ended Sept 30 was up 8.6 per cent over the previous year to 3.2 cents.

This latest acquisition comes after A-Reit announced four proposed investments earlier this year, worth $180 million in total, that have yet to be completed.

Super Industrial Building, a seven-storey property sitting on a 101,040.8 sq ft site, has a 60-year lease that took effect on June 1, 1996.

The other building, 26 Senoko Way, is on a 100,319.6 sq ft plot. It also has a 60-year lease, which started on Sept 16, 1992.

Super Coffeemix intends to use the proceeds from the sale to fund future acquisitions, said company chairman David Teo in a statement.

The deal ‘would boost our war chest by $49 million and we are on the lookout for potential acquisition targets that will add synergies to our current operations’, he said.

These include companies in Asia and Europe with established food and beverage brands, Mr Teo added.

He also said that the purchase is in line with the group’s ‘asset-light strategy’ and will increase its competitiveness.

$49m acquisitionA-Reit will pay $33.5 million for Super Industrial Building at No. 2 Senoko South Road and $15.5 million for 26 Senoko Way.

It will lease the assets back to the mainboard-listed 3-in-1 instant coffee-maker for seven years with an option to renew for an additional seven years.

Source : Straits Times - 24 Oct 2006