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'If you look at transactions of office floors at Suntec City, say about 12 months ago, or even just seven/eight months ago, they were going at above $2,000 psf; now they are below $1,500 psf. So that's a huge discount,' observed Cushman & Wakefield managing director Donald Han.

It also presents attractive value to some potential investors, although strata office transactions on the whole have slowed to a trickle amid the generally weak property investment sales climate and the tight credit market.

'Things are a lot different from two years ago when rents were escalating. Then, you'd find buyers looking to own their premises instead of being at the mercy of landlords and upward rental revisions. Today, the priority for companies is cash preservation and buyers are looking at the right price before taking a position. There are still some investors hoping to buy strata offices for their own occupation. But there are also pure investors hoping to fish at the bottom of the cycle,' Mr Han said.

Some of those willing to sell their strata offices now may be trying to capitalise on opportunities such as acquiring new businesses, said Mr Han.

DTZ's senior director for investment advisory services Shaun Poh said that foreign companies with a presence in Singapore are among those interested in buying strata office floors. 'Some of them may need say only 3,000 to 4,000 sq ft premises, but are willing to pick up an entire floor of say 11,000 to 12,000 sq ft at Suntec City (and lease out the rest of the space). So it's a case of buying for their own use mixed with an investment flavour,' he said. And if there's a chance of prices coming down another 10-15 per cent, they are prepared to wait it out.

Cushman's Mr Han recalls that during last year's market peak, strata office investors were eyeing units with either vacant possession or with leases expiring soon. They wanted to ride on higher rental rates that would come with new or renewed leases.

'But with office rents slowing down quickly today, you'd probably want a unit with a lease committed during the peak last year and with another two years to go,' Mr Han said.

Grade A office rents peaked in Q3 last year. According to CB Richard Ellis data, the average gross monthly rental value for Grade A office space in Singapore slipped 20.2 per cent in Q4 last year from the preceding quarter, resulting in a full-year decline in 2008 of 12.5 per cent. This was in sharp contrast to the 96.4 per cent jump seen in 2007. - 2009 March 13 BUSINESS TIMES

With credit concerns looming over the market, refinancing is now top of the agenda for Suntec Real Estate Investment Trust (Reit).

'While we have no major financing needs in the next 12 months, we are keenly aware of the current global financing crisis and liquidity crunch,' said Yeo See Kiat, CEO of Suntec Reit manager ARA Trust Management (Suntec).

'Refinancing of our $700 million CMBS loan due in December 2009 is one of our key priorities.'

For FY2009, Suntec Reit has debts of $40 million, $85 million and $700 million maturing in April, May and December respectively. Its gearing ratio at Sept 30 was 31.9 per cent.

But refinancing should not pose a major problem, Mr Yeo said. 'We have got a good partner in Cheung Kong. The financial institutions know who we are.'

ARA Trust Management (Suntec) is linked to Cheung Kong Group, a major Hong Kong conglomerate.

Mr Yeo was addressing financing concerns at a briefing on Suntec Reit's results for its fourth quarter ended Sept 30.

It reported a 44.5 per cent year-on-year surge in distribution income to $43.9 million. This drove a 34.6 per cent jump in distribution per unit (DPU) to 2.854 cents.

With an annualised DPU of 11.353 cents, Suntec Reit's distribution yield was 17.6 per cent based on the closing unit price of 64.5 cents on Oct 29.

According to Suntec Reit, its office portfolio continued to enjoy positive rental reversion during the quarter. The committed occupancy rate at Sept 30 was 99.3 per cent.

Suntec Reit has acquired about 61,500 sq ft of Suntec City strata-titled office space, but is likely to put such growth on hold given today's business climate, Mr Yeo said.

The project could be postponed for one to two years and reviewed when conditions change.

Suntec Reit's retail portfolio enjoyed an occupancy rate of 99.6 per cent at Sept 30.

Suntec City Mall, Park Mall and Chijmes all saw higher committed passing rents compared with a year earlier.

Investors pushed Suntec Reit's unit price up 4.5 cents yesterday to close at 69 cents. - 2008 October 31 BUSINESS TIMES

US FINANCIAL CRISIS
In Singapore's Suntec Tower Five, the waiting begins
Lehman staffers await fate; MAS says it's monitoring markets closely

Shell-shocked Lehman Brothers employees in Suntec Tower Five were trying to put on a brave face yesterday, though none knew their fate following news that their company had filed for bankruptcy protection in the US.

Although many Lehman workers continued going to the office and answered the phone when BT called after 5pm, it was clear that they knew nothing more than what they could read from the Internet.

Lehman ramped up operations in Singapore since last year, employing 270 people, up from 60 two years ago. But Hong Kong continues to be pretty much the head office for Asia, and yesterday it was a public holiday there.

'We still have a morning meeting tomorrow (with Hong Kong),' said a managing director here. Asked what was happening in the office, he said: 'Things have a tendency to follow through. Clients won't want to trade with you for obvious reasons.'

One source said that the meeting today will be to hear from human resources on a payout.

In a statement from New York, Lehman said that none of its subsidiaries will be immediately affected by the parent's bankruptcy filing and will continue to operate as usual.

Lehman said that it is still in talks to sell parts of its business, including its Neuberger Berman investment management division.

In conjunction with the bankruptcy filing, Lehman said that it intends to file 'a variety of first day motions that will allow it to continue to manage operations in the ordinary course. Those motions include requests to make wage and salary payments and continue other benefits to its employees'.

The Monetary Authority of Singapore said last night it is 'closely monitoring developments in the global financial markets and their impact on financial stability'.

'Domestic money and foreign exchange markets are continuing to function in an orderly fashion,' a MAS spokeswoman said.

'MAS remains in close contact with the banks, the Singapore Exchange and financial institutions to monitor developments and to see to the orderly functioning of the markets.'

The Singapore Exchange confirmed yesterday that Lehman was meeting its financial obligations as usual.

DBS Bank spokeswoman Karen Ngui said DBS's direct exposure to Lehman is insignificant. 'On the retail front, some investment products DBS sold in the past, such as High Notes 2 and High Notes 5, have Lehman exposure. However, the global economic situation has changed dramatically and this has impacted the value of these investments,' she said.

'Our priority now is to ensure that our customers are well-informed of the latest market developments.'

OCBC Bank said last night that it is monitoring developments in the US and the global financial markets.

'We have no announcement to make regarding Lehman at this point,' said OCBC spokeswoman Koh Ching Ching.

In February this year, OCBC was joint lead-arranger for Lehman Brothers' $250 million bond issue, which was sold to a wide range of investors - predominantly Singapore domestic buyers.

A United Overseas Bank spokeswoman said that the bank has little exposure to Lehman Brothers. 'The bank's total exposure to Lehman is very small and insignificant,' she said.

Lehman's Singapore office is its centre for commodities and foreign exchange trading in the Asia-Pacific. It also performs other functions such as fund distribution for Lehman's asset management arm and prime broking services for hedge funds in South-east Asia.

Just a year ago, the firm converted its branch office here into a full-fledged local subsidiary. - 2008 September 16 BUSINESS TIMES

Suntec Reit's CDL, Wing Tai deal may not fly
Share weakness, investor resistance cited as reasons

Suntec Real Estate Investment Trust's proposed $1 billion acquisition of office and commercial properties from City Developments and Wing Tai Holdings may fall through, said Merrill Lynch.

The US investment bank cited two reasons: weakness in Suntec Reit's share price and investor resistance to the deal.

Since Suntec Reit announced the deal on July 1, its share price has slid over the past month or so, falling to $1.19 from around $1.22.

The decline in its share price presents a challenge for the deal to be accretive, Merrill said.

On the second reason, the investment bank said it believed there could be 'a degree' of investor resistance to the deal in the market.

Such resistance may necessitate a larger discount when raising the new equity of $500 million and the discount may further enhance the challenge of making the deal accretive, it said.

Suntec Reit is proposing to buy 11 assets - from office buildings to strata carpark units - from City Developments for $788 million, and Park Mall from Wing Tai for $230 million.

Merrill's views add to the current negative market sentiment over the success of the proposed deal.

Last week, Temasek Holdings chief executive Ho Ching warned investors about the potential dangers when Reits make acquisitions involving the deferred issue of trust units to circumvent short-term investment hurdle rates.

Although Ms Ho did not name any Reit that uses deferred payment, it is widely known that Suntec Reit has been doing so.

Market watchers have since been wondering if its recent deals would proceed in their current form, which involve deferred payment of nearly 10 per cent of the purchase price.

ARA Group, the manager of Suntec Reit, has that the property trust will review its proposed acquisitions. - 2005 August 6 SINGAPORE BUSINESS TIMES

Suntec Reit to buy assets from Wing Tai, CityDev
Sources say portfolio being finalised and could cost about $1b

Suntec Reit is close to inking a deal to buy a portfolio of properties from Wing Tai and City Developments for close to $1 billion, sources say.

Changing hands: Park Mall (left) and City House (right), two of the assets under negotiation. The entire deal could involve over 1.2m sq ft of space

The properties add up to over 1.2 million sq ft of space and are said to include Park Mall in Penang Road, which is majority-owned by Wing Tai, and a host of properties owned by CityDev, ranging from City House and Fuji Xerox Towers to Central Mall and Katong Shopping Centre.

The precise slate of properties that Suntec will buy is still being finalised, BT understands. Market watchers note that the acquisition will enable Suntec Reit to diversify its property portfolio and income stream, thus reducing the property and tenant concentration risks it currently faces from deriving its entire income from owning mall and office space at the Suntec City complex worth about $2.2 billion.

The price that Suntec Reit is negotiating to pay for the portfolio of properties from Wing Tai and CityDev is said to reflect a yield of about 4.8 per cent.

After factoring in gearing, the yield should be higher, which should make the potential acquisition yield accretive to Suntec, which is now trading on the stock market at a distribution yield of 4.7 per cent.

Further yield upside from the assets should be achieved when Suntec Reit refurbishes some of the assets or boosts their tenancy mix.

The trust is expected to reposition Park Mall to tap the youth catchment in the area, which is near the new Singapore Management University campus.

'The mall could use some bookstores, food outlets and shops selling fashion goods for the young, to give the young hip crowd from the nearby campus a place to hang out,' said a retail industry observer.

The 287,000 sq ft mall and office development, on a Cannot justify line site with a remaining lease of 63 years, was valued last year at $230 million.

Wing Tai owns two-thirds of the mall, with an entity controlled by the family of the late Hong Kong shipping magnate Y K Pao holding the rest.

Market watchers say Wing Tai could buy out its minority partner and then deliver full ownership of Park Mall to Suntec Reit to neaten the acquisition process for the Reit.

Market watchers suggest the deal could also provide CityDev with a good opportunity to sell its remaining space at Tanglin Shopping Centre, Katong Shopping Centre and carpark units at Golden Mile Complex in Beach Road and People's Park Complex. - - by Kalpana Rashiwala 2005 June 30 SINGAPORE BUSINESS TIMES

The company said it would acquire 11 properties, including office buildings and shopping malls valued at $788 million dollars from property developer City Developments and its related corporations.

It would also purchase a shopping mall worth $230 million from another property developer, Wingain Investments.

Suntec REIT holds properties in sprawling Suntec City, Singapore's largest integrated commercial development, including its biggest shopping mall.

The acquisitions are expected to be completed by October and are expected to increase Suntec REIT's total investment properties to $3.3 billion from $2.2 billion. - 2005 June 30 SINGAPORE BUSINESS TIMES

Suntec Reit, which owns a majority stake in Suntec City Mall and Office Towers, is studying ways to make its 2 million sq ft property asset more profitable.

It has appointed design consultants DP Architects and property consultants Knight Frank for this purpose.

Suntec Reit CEO, Quek Kar Tung, says both consultants were appointed this month to look at ways of increasing rental yields, primarily through the retail segment of Suntec City.

Mr Quek revealed that one of DP Architects' main tasks will be to study the feasibility of decanting or transferring lower-yielding office space in favour of better performing retail space.

The concept of decanting was floated in a 1999 Singapore Tourism Board commissioned study and was raised by the Economic Review Committee's Land WorkGroup in 2002.

Suntec City Mall, which has 77,361 sq m of lettable retail space, and has an occupancy rate of about 98.9 per cent, is said to have an appraised value of $1.2 billion. On the other hand, the office component, which has a committed occupancy rate of 84.5 per cent and comprises 113,850 sq m, has an appraised value of $951 million. As of end-March, the average rental in the shopping mall was $8.68, while that for offices is $4.29 psf.

To decant any space, the space has to be either demolished, sealed off permanently or as in the case of Junction 8 in Bishan (which had its office block decanted in 2004), handed over to a charity. At Junction 8, the decanted space - or gross floor area (GFA) - was used to enlarge the shopping mall.

Industry sources also say that at Suntec City, a recomputation of gross floor area may actually show that there may be excess GFA (already paid for) that could be combined with any decanted space to create an extension to the shopping mall.

Mr Quek would not confirm plans for an extension to the shopping mall but said more conclusive studies are being done to assess the feasibility of this and that a decision is likely around end-June.

He did, however, say that one of the consultants' recommendations - which Suntec Reit has accepted - is to increase the percentage of fashion outlets there. 'At the moment, fashion outlets make up only 15 per cent of the tenant mix. This is quite low compared with Orchard Road malls where fashion makes up about 50 per cent of the mix. Through sensitivity analyses, we have found that if we increase fashion mix to about 35 per cent or a third of the mall, we may be able to achieve rents of $12 psf,' added Mr Quek.

To do this, Knight Frank's associate director, Sherene Sng, says the shopping mall will have several new 'fashion clusters'. The first, located on level three, will be targeted at the youth market and will be similar in concept to those at the Heeren or Far East Plaza. DP Architects is said to be designing this now.

There will also be another fashion cluster closer to Suntec City Convention Centre. This is likely to be targeted at 'urbanites'. 'Right now, we have pedestrian traffic but we want to see more young professionals as they tend to spend more.' Ms Sng also said that the F&B zone will be made more distinctive and a 'Family Link' will give the area around the hypermarket (Carrefour) more focus.

When asked about the cost of the plans, Mr Quek would only only say: 'The beauty of this is that it won't incur a lot of cost.'

Estimates put the renovation costs at between $10 million and $15 million. The CEO explained that with about 30 per cent of the leases expiring this year and the rest over the next three years, the changes to the mall could also be undertaken incrementally when the tenants either moved out or relocated to different zones within the mall. He added that some of the changes would be as simple as reconfiguring retail spaces and making these smaller and easier to lease. There is also a plan to create better linkage between the main mall and a couple of 'dead ends' which are cut off by a road.

Mr Quek says these changes, which are expected to be completed by 2008, will help increase average retail rents by $4 psf. This may not sound like much but he explained the increase would mean a significant increase in the distribution per unit by 50 per cent because the lower figure of around $8 was factored when the Reit was first floated last year. The target for Suntec Reit now is to generate about $64 million in additional net property income over the next four years. - 2005 May 30 SINGAPORE BUSINESS TIMES

Huge Suntec Reit set to launch by year-end
The biggest initial public offer of 2004 looks set to take place by year-end.

Suntec Real Estate Investment Trust - which will own about two million sq ft of retail and office space at Suntec City, worth about $2.1 billion - will offer 722 million units to institutional and retail investors.

At the offer price range of 97 cents to $1 per unit, the first-year forecast distribution yield for Singapore's first mixed-development Reit works out to 6 to 5.8 per cent - higher than existing Reits holding Singapore properties are now trading at.

CapitaCommercial Trust, which holds CBD offices, carparks and other commercial property, is trading at 4.4 per cent.

The distribution yield for CapitaMall Trust, which owns five malls, is 5.4 per cent, while that for Ascendas Reit, which holds business space and industrial and logistics facilities, is 5.7 cent.

Analysts say one factor helping to boost Suntec Reit's yield is the deferral of some units to be issued to Suntec City Development Pte Ltd (SCD), the company owned by a group of Hong Kong tycoons which is selling the asset to the Reit.

The lower the number of units in a Reit, the higher the distribution per unit, which results in a higher yield at a given unit price.

The deferred payment - of about 207 million units based on a $1 issue price - works out to almost 10 per cent of the purchase price and about 16 per cent of the initial number of units in the trust.

The deferred units will be issued in six equal half-yearly instalments starting from about three-and-a-half years.

The deferred payment aside, SCD - which is owned by the likes of Li Ka-shing, Frank Tsao, Lee Shau Kee, Run Run Shaw and Cheng Yu-tung - will be paid the remaining $1.9 billion of the purchase price by the Reit at the outset.

This payment will have two components: 565 million units - or 43.9 per cent of the initial number of units in the Reit - and $1.335 billion cash. The latter will be raised through the IPO and about $748 million in debt.

The preliminary prospectus for Suntec Reit was lodged yesterday and the IPO is expected to be launched this month.

Besides the 722 million units on offer, the Reit's sponsor, SCD, is prepared to offer up to 108.3 million units - from its own allotment of 565 million units - to meet strong investor demand.

Suntec Reit will be managed by a unit of ARA Asset Management, which is owned by Cheung Kong Holdings and John Lim.

SCD is selling to the Reit the entire mall in the Suntec complex and the remaining office space - but not the loss-making convention centre.

Net property income from the space has been falling over the past few years because of the weak office market. Leases have been renewed at lower rents - a trend that is expected to continue for a while despite the nascent recovery in the sector.

Reflecting this, Suntec Reit's net property income is forecast to ease a little for the first 10 months to Sept 30, 2005. However, it is expected to pick up to $100.1 million in the full year ending Sept 30, 2006. About 83 per cent of the office space is occupied.

The Suntec Mall is almost fully let, and should see improved shopper traffic when two new Circle Line MRT stations open.

Suntec's shop rents on average are lower than those at competing malls, creating potential for increases. Rental income from the mall is also expected to benefit from lease features like stepped-up rents and turnover rent.

Citigroup and DBS are joint financial advisers for the offer. The two, with Deutsche Bank, are joint lead underwriters and bookrunners. BNP Paribas Peregrine is co-manager. - by Kalpana Rashiwala 2004 October 13 SINGAPORE BUSINESS TIMES

Investors will be able to own a piece of the popular Suntec City shopping complex and office block as a result of the biggest initial public offering (IPO) in two years, set to be launched within weeks.

The IPO will take the form a real estate investment trust (Reit) which owns a bundle of properties and aims to pay out rental income in the form of regular dividends to investors.

Yesterday, the Suntec City Reit lodged its preliminary prospectus with the Monetary Authority of Singapore, the first step towards a public listing. The offer is expected to be launched at the end of this month or early next month.

A total of 722 million units will be sold for between 97 cents and $1 each, raising $700 million to $722 million. The pricing will be confirmed after the response of institutional investors in the next few weeks.

This looks set to be Singapore's largest IPO since M1's offer raised $762 million in 2002 and Chartered Semiconductor Manufacturing's offer in 1999, which raised US$500 million (S$831.5 million).

It should eclipse SingPost's offer last year, and will be easily the largest this year, dwarfing StarHub's IPO, which raised $458 million.

Among the properties forming the Reit is Suntec City Mall, Singapore's largest shopping mall. Tenants include Carrefour Singapore and the New Creation Church's business arm, Rock Productions.

SUNTEC REIT

The Suntec City Reit will be managed by ARA Asset Management, which is part of Hong Kong tycoon Li Ka Shing's Cheung Kong group. The Singapore unit of ARA Asset Management also manages Fortune Reit, which owns Hong Kong shopping centres.

Forming the Reit are Suntec City Mall and the Suntec City Office Towers.

Tenants with the former, which is Singapore's largest shopping mall, include Carrefour Singapore and the New Creation Church's business arm, Rock Productions.

Big-name tenants with Suntec City Office Towers include the InfoComm Development Authority, Oracle and Hewlett-Packard.

The Reit does not include the Suntec Singapore International Convention and Exhibition Centre.

The committed occupancy rate is 98.9 per cent and its appraised value is $1.2 billion.

Also included in the Reit are the Suntec City Office Towers. Tenants include the InfoComm Development Authority and multinational corporations such as Oracle and Hewlett-Packard. The committed occupancy rate is 83 per cent. The appraised value is $951 million.

The Suntec Singapore International Convention and Exhibition Centre, part of the same complex, is not included.

Suntec City has 77,631 sq m of lettable retail space and 113,850 sq m of lettable office space.

Analysts point out that this will be the first Reit on the market to own a mix of office and retail properties.

CapitaMall Trust (CMT) owns shopping malls, while CapitaCommercial Trust (CCT) has only office buildings. Ascendas Reit owns industrial buildings. Fortune Reit owns suburban shopping centres in Hong Kong.

Analysts also say that the yield is attractive. For the forecast period from Dec 1 this year to Sept 30 next year, the distribution per unit (DPU) is 4.85 cents. Based on the share price of 97 cents and $1, the annualised distribution yield will be 6 per cent and 5.82 per cent respectively.

For the next full year ending Sept 30, 2006, the DPU is projected to be 6.13 cents. The annualised distribution yield will be 6.31 per cent and 6.13 per cent respectively.

CMT's latest annualised DPU is 9.58 cents. Based on yesterday's share price of $1.70, the yield is 5.6 per cent. CCT's annualised DPU is 6.3 cents. On yesterday's price of $1.29, the yield is 4.9 per cent.

This was the deal that almost got away. Last month, newspaper reports said German insurance giant Ergo - which owns Pidemco Centre - was about to make a bid for all the assets, including the convention centre, at about $2.3 billion.

The plus of such a deal would have been that the five Hong Kong tycoons who are the main owners of Suntec could have made a clean exit.

There has been talk for some time that they were ready to sell out. Each owns around 16 per cent. T hey are Mr Li Ka Shing, New World Development chairman Cheng Yu Tung, Henderson Land chairman Lee Shau Kee, Shaw Brothers' Sir Run Run Shaw and IMC Group chief Frank Tsao.

Making up the Reit

Forming the Reit are Suntec City Mall and the Suntec City Office Towers.

Tenants with the former, which is Singapore's largest shopping mall, include Carrefour Singapore and the New Creation Church's business arm, Rock Productions.

Big-name tenants with Suntec City Office Towers include the InfoComm Development Authority, Oracle and Hewlett-Packard.

The Reit does not include the Suntec Singapore International Convention and Exhibition Centre. - 2004 November 13 SINGAPORE STRAITS TIMES

Overseas buyer makes offer to buy Suntec City
Published 13 Oct 2004 by SINGAPORE BUSINESS TIMES

German insurer eyes $2.3b Suntec City deal
Published 14 Oct 2004 by SINGAPORE BUSINESS TIMES

Parties linked to German insurance giant Ergo - which made a splash on the local property scene when it bought a chunk of Wisma Atria and Ngee Ann City - are said to be engineering Singapore's biggest property transaction yet.

Sources told BT that the parties are eyeing Suntec City for a staggering $2.3 billion. In addition, they are considering buying Hongkong Land's nearby CityLink Mall for about $150 million, which works out to a yield of about 6 per cent.

'It makes sense for Ergo to have a stake in both properties for a seamless connection,' one market watcher said yesterday.

CityLink Mall is a 47,500 sq ft underground shopping centre connecting Suntec City and City Hall MRT Station.

The offer to Suntec City Development (SCD) covers all the space that it owns in the complex - 1.7 million sq ft strata area of offices, the entire 990,000 sq ft Suntec City Mall and the one million sq ft Singapore International Convention & Exhibition Centre.

If a deal materialises with Ergo, it has the connections to rope in the likes of trade fair giant Messe Dusseldorf to boost the convention/exhibition business at Suntec, say industry observers.

From the viewpoints of Li Ka-shing, Run Run Shaw, Cheng Yu-tung and the other Hong Kong tycoons who are SCD's shareholders, this could be a neater divestment than the other option they are considering - floating a real estate investment trust (Reit).

For one, the proposed Suntec Reit will still leave them with the loss-making exhibition/convention component, which will not be included in the trust as it will drag down its yield.

BT reported yesterday that an application to list Suntec Reit has been submitted to the Singapore Exchange (SGX). Based on the current timetable, an initial public offer (IPO) should be launch-ready by end-November.

If Ergo succeeds in bagging Suntec City and CityLink Mall, the deals are expected to be structured as asset securitisations with Ergo and its strategic partners holding a substantial tranche of the junior bonds issued. These would be similar to the structure Ergo and fellow German insurer Provinzial Rheinland used to hold their investments in Wisma Atria (excluding Isetan's store space) purchased in 2002 and their 27 per cent stake in Ngee Ann City bought last year from Metro Holdings.

The two asset securitisation deals were for $451 million and $560 million respectively.

Some of SCD's shareholders keen on retaining an interest in Suntec can also hold some junior bonds, suggest analysts.

Typically under such securitisation deals, junior bonds are stapled with preference shares giving their holders all the gains that the property derives - whether it's operational, in the form of excess rental income after all the senior bond holders have received coupon payments, or capital appreciation when the asset is eventually sold.

Market watchers suggest other parties linked to Ergo's earlier deals may also be involved in a potential investment in Suntec City. Ergo Tru Asia (a joint venture between Ergo and Jeff Tay, a former real estate investment banker who brought the German group to Singapore) and Metro Holdings are co-investors in Shui On Land, a flagship property company set up earlier this year focused on the Chinese mainland.

Ergo has spearheaded the investment of about $2 billion in real estate investments in Singapore over the past four years, including the securitisation of Capital Square and a 50:50 joint venture with CapitaLand for the Eureka Office Fund, which owns the 1 George Street development, Adelphi and a stake in Temasek Tower.

However, Ergo could have trimmed its exposure to some of its Singapore investments, sources say. - by Kalpana Rashiwala 2004 October 14 SINGAPORE BUSINESS TIMES

Li Ka-shing, HK tycoons mull Reit for Suntec City

Hong Kong tycoon Li Ka-shing, who floated his Fortune Real Estate Investment Trust (Reit) on the Singapore Exchange last year, is seriously studying listing a second property trust here containing part of the over $2 billion Suntec City development, sources told Business Times.

This would be Singapore's first 'mixed' Reit - comprising both office space and retail assets - if the plan comes to fruition.

Market watchers expect Suntec City Development Pte Ltd's (SCD) office and retail components to make their way into the Reit - but not its convention space, as this will drag down yields.

The owners of Suntec City, including tycoon Li Ka-shing, are in an enviable position - on top of plans to set up a real estate investment trust for the property, they now also have a firm offer for the investment.

Sources told BT that Mr Li and his fellow Hong Kong tycoons may call off the much-awaited Reit launch if they decide to sell to a foreign institutional buyer who recently made an offer for the 1.7 million sq ft of office space, the 990,000 sq ft shopping mall and the one million sq ft Singapore International Convention & Exhibition Centre.

While the tycoons mull their options, plans are still underway for an intial public offer of the Suntec Reit that will hold $2.1 billion of offices and mall space at Suntec City. The convention and exhibition centre will not be included to avoid dragging down the Reit's yield.

An application to list the Reit has already been submitted to the Singapore Exchange with an IPO scheduled for the end of next month.

Citigroup Global Markets Singapore and DBS Bank have been appointed joint financial advisers. The two banks and Deutsche Bank will be joint underwriters and bookrunners.

The Suntec Reit being proposed will be Singapore's first mixed development Reit holding about 1.7 million sq ft strata area of offices and the entire 990,000 sq ft Suntec City Mall.

Suntec Reit's IPO price range will work out to an initial distribution yield of 5.8 to 6 per cent - higher than what existing Singapore Reits are currently trading at.

Sources suggested one way Suntec Reit's yield may be supported is by deferring the issue of about 10 per cent of the Reit's units. The smaller the number of units in issue, the higher the distribution or dividend per unit - in turn translating to a higher distribution yield at a given unit price.

This is how the deal is expected to be structured: Suntec Reit will buy the $2.1 billion worth of office and retail space from Suntec City Development (SDC), whose shareholders are the Hong Kong tycoons.

The underwriters will raise about $1.3 billion from the IPO and debt. In addition, SCD's shareholders are expected to be issued $600 million worth of units in the trust that will come with a sale moratorium.

The final $200 million payment to SCD's shareholders will be deferred for a few years, allowing the Reit to delay the issue of an equivalent value of units and thus enhancing its distribution yield.

After factoring in this deferred portion, the Suntec tycoons may hold a nearly 40 per cent interest in the Reit.

A unit of ARA Asset Management, owned by Mr Li's Cheung Kong group and John Lim, is expected to manage Suntec Reit. An ARA unit manages Cheung Kong's Fortune Reit floated here last year.

Besides Mr Li, the other Hong Kong tycoons who own stakes in SCD - all in their personal capacities - include Shaw Brothers' Run Run Shaw, New World Development chairman Cheng Yu-tung, Henderson Land chairman Lee Shau-kee and IMC Group chief Frank Tsao.

SCD last year posted a pre-tax profit of $80.9 million, down from $86.1 million in the previous year. The drop was probably due to the Sars outbreak, suggested market watchers.

Turnover fell from $193.9 million to $184 million.

As at the end of last year, SCD had $2.4 billion of fixed assets, presumably comprising largely the book value of Suntec City (including the convention centre) based on latest filings with the Accounting & Corporate Regulatory Authority.

Past sales left SCD with about 1.7 million sq ft of offices, the mall and the convention centre.

After selling a substantial amount of the project's office space in the past, SCD is now left with about 1.7 million sq ft of strata area offices, a 990,000 sq ft mall and the one million sq ft Singapore International Convention & Exhibition Centre.

The company has not sold any of the retail or convention space.

Mr Li and a group of other Hong Kong tycoons developed Suntec City in the late 1980s and early 1990s on an 11.7-hectare site bagged at a state tender.

ARA Asset Management, part of Mr Li's Cheung Kong group, is understood to have recently completed a due diligence on the proposed Reit for Suntec City.

The final decision on whether to float the trust and exactly which parts of the Suntec City project will be included in it is being made by Mr Li and the other Hong Kong tycoons, sources told BT.

DBS Bank is expected to handle a potential flotation. A listing is being targeted by year end, the sources said, adding that an application for a listing on the SGX has yet to be made.

The Singapore unit of ARA Asset Management is the manager of Fortune Reit, which Cheung Kong (Holdings) floated last year. The trust owns suburban shopping centres in Hong Kong.

SCD earned a net profit of about $100 million in 2002. As at the end of that year, the company had fixed assets - presumably comprising largely the book value of Suntec City - of $2.6 billion, according to latest records filed by with the Accounting & Corporate Regulatory Authority.

Using these figures for a back-of-the-envelope type of calculation, the yield from Suntec City works out to about 3.8 per cent. Analysts say that excluding the convention centre component, the yields from Suntec's mall and offices should easily be hitting the 5-6 per cent levels offered by Reits currently trading on the Singapore bourse.

A more accurate calculation of yields for Suntec City would require a more recent valuation of the asset, added the analysts. 'But the numbers should work out, excluding the convention centre. This is an immensely profitable development,' a source told BT.

It is believed that SCD's shareholders have been reaping about $100 million in dividends annually for the past few years.

The Hong Kong tycoons own the stakes in their personal capacities, although these are held mostly through vehicles incorporated in places like the British Virgin Islands, Panama and Jersey, Channel Islands.

Five of the tycoons hold stakes of 16 per cent each in SCD. Besides Mr Li, the others are New World Development chairman Cheng Yu-tung, Henderson Land chairman Lee Shau-kee, Shaw Brothers' Run Run Shaw, and IMC Group chief and SCD chairman Frank Tsao.

Brothers Chou Wen-hsien and Chow Chung-kai of the Winsor group hold between them 12 per cent.

Carlton Hotel Group chairman Li Dak-sum also owns a stake in SCD.

Suntec City, completed in stages between October 1994 and August 1997, comprises five office towers with a total strata area of about 2.9 million sq ft, a mall with about 990,000 sq ft strata area and one million sq ft of convention space.

The offices are spread over four 45-storey blocks and an 18-storey tower. SCD has sold space in three of the taller towers.

It is now left with an estimated 1.7 million sq ft of offices, which it can potentially inject into the proposed Reit. - by Kalpana Rashiwala 2004 June 22 SINGAPORE BUSINESS TIMES