Suntec REIT: Potential Ability to Increase DPU by 15.7% with Sale of JVs and a Dividend Master REIT

As readers would know, I am looking for new companies to add to my portfolio. Today after scouring the SGX listed companies, another has come to my list and that is Suntec REIT. Suntec REIT is not due to its dividend but because of the potential positive DPU increase if it delverages. Let's see the maths below:

Suntec's SGD Debt

Suntec has SGD$3.486 billion debt at an average weighted debt cost of 4.6% interest rates. Annually Suntec REIT is paying $160.35 million in interest.

Suntec Valuer Valuation of its 33% JVs

Suntec's 33% JV has an overall valuation of SGD$3.142 billion and earns $109 million. All data is found in its annual report and valuation was done by reputable valuers.

Sale of JV and DPU accredition

A sale of its JV at say SGD$3.1 billion (nett of 1% divestment fee) and using its proceeds to pay down its Singapore SGD loan will result in an interest savings of $142.6 million and an income loss of $109 million; however, this means Suntec unitholders will see a SGD$32.6 million increase in distributable income annually.

Currently Suntec Unitholders enjoy $206.8 million in distributable income. With the divestment of its 33% JV stakes, this means there is a 15.7% increase in DPU a year. From 7.1 SGD cents, Suntec Unitholders can enjoy 8.2 SGD cents. (7.5% dividend yielder)

A sale of Singapore Assets will reduce leverage ratio as well.

Suntec has a leverage ratio of 42.2% on SGD $4.24 billion loan. This means asset value is SGD $10.04 billion. A sale of $3.142 billion JV will result in a hypothetical debt of SGD$1.14 billion debt and asset value of $6.898 billion. Its new leverage ratio will be reduced from 42.2% to 16.52%

Summary

A sale of Suntec's 33% JV can increase DPU by 15.7% making it a 7.5% dividend yielder, in addition, its leverage ratio will be reduced to 16.52% making it the least leveraged REIT in Singapore and cementing it as a blue chip status. It will help deliver long term value to shareholders and put the REIT on a much stronger financial footing.

It is weird why Suntec's REIT manager has not thought of this and I beseech the REIT manager to act in the interest of unitholders. Its Singapore valuers has provided a good valuation of the property and Suntec REIT should be able to find buyers at this price unless its valuers have been providing fraud information to the REIT manager and unitholders.