Suntec REIT - RHB Invest 2017-04-27: In-line Results But Headwinds Persists

Suntec REIT - RHB Invest 2017-04-27: In-line Results But Headwinds Persists SUNTEC REAL ESTATE INV TRUST T82U.SI

Suntec REIT - In-line Results But Headwinds Persists

  • We make no change to our Neutral rating, forecast and DDM-derived TP of SGD1.53, FY17 dividend yield of 5.8%.



Highlights

  • Suntec REIT's (Suntec) 1Q17 DPU of 2.425 cents (+2.3% YoY) were in-line meeting 24% of our forecasts. The increase in DPU came mainly from higher contribution of 177 Pacific Highway and Southgate Complex. 
  • 1Q DPU includes a capital distribution of SGD3.0m (-25% YoY) mainly arising from the sale proceeds of Park Mall.
  • JV contributions were up 9.2% YoY mainly due to contributions from Southgate Complex.
  • Gearing stands unchanged at 37.7% with all in financing costs of 2.42%. About 65% of its debt is fixed.
  • Overall Office and retail portfolio occupancies edged up 0.3ppt QoQ to 98.9%/98.0%. Adjusted NAV/unit stands at SGD2.12.


Key takeaways

  • In 1Q17, Suntec signed 130,000 sq ft of new Singapore office leases with 31% of them being new demand. It still has about 174,210 sq ft of leases due for renewal this year. Rent reversions are likely to remain soft owing to huge supply in the market.
  • For Singapore retail segment about 20.8% of its leases are pending renewals this year. Rent reversions are likely to stay negative (2-5%) owing to challenging retail climate. 
  • On a positive note, Suntec City Mall's shopper traffic and tenant sales has increases 7.3% YoY and 4.3% YoY respectively indicating positive effect from AEIs and mall repositioning.
  • Development works in 9 Penang Road (former Park Mall) in which Suntec has a 30% stake are progressing on track. The site will be redeveloped into to office towers (352,000 sq ft) and retail space of 15,000 sq ft. The total estimated development cost for redevelopment is ~SGD 800m (including lease top-up to 99 years) and is expected to be completed by end of 2019.
  • In Australia, Occupancy in Southgate complex increased to 89.7% with Heads of agreement signed for additional 2% of leases. 177 Pacific Highway which was completed on Aug 2016 is 100% occupied with long WALE of 8 years and should contribute positively to FY17 DPU.
  • With persisting headwinds in Singapore Office and retail sector we believe the risk-rewards are fairly poised. Maintain Neutral with unchanged TP of SGD1.53.




Vijay Natarajan RHB Invest | http://www.rhbinvest.com.sg/ 2017-04-27
RHB Invest SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 1.530 Same 1.530



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