CIMB Research 2015-07-23: Suntec REIT - Stable office as retail ramps up. Maintain HOLD.

Stable office as retail ramps up 


  • SUN’s 2Q/1HFY15 DPUs were broadly in line, at 24%/46% of our full-year forecast. 
  • The office portfolio has remained stable with 99% committed occupancy, but we think the retail portfolio could take longer than expected to ramp up in terms of occupancy and rents. 
  • We maintain our Hold rating but cut our FY15-17 DPUs as we tweak down our rental forecasts, resulting in a lower DDM-based target price S$1.79 (from S$1.86).   


Results highlight 


  • SUN’s 2Q/1HFY15 DPUs were broadly in line, at 24%/46% of our full-year forecast. 
  • Distributable income grew 10% yoy, largely on higher contributions from Suntec City Phase 2 and a capital distribution of S$6m. 
  • The balance sheet has remained healthy with a leverage ratio of 36.2%, while all-in financing cost edged up to 2.7%, from 2.5% in the previous quarter. 


Stable office as retail ramps up 


Stable office. 

  • Committed occupancy for overall office portfolio stood at 99%. 
  • We expect Suntec City office’s slight dip in occupancy to 98.4% (99.6% the previous quarter) to be transitional and temporary in nature. 
  • With only 6% of leases set to expire in FY2015, we think the office portfolio should remain fairly resilient given the gap between Suntec City’s expiring office rents at S$8+psf pm and signing rent at S$9psf pm. 

Retail ramping up. 

  • Suntec City retail achieved 95.3% committed occupancy and S$12.12psf pm committed passing rent, below the targeted S$12.59psf pm. 
  • Management cited retail headwinds but remains hopeful on achieving 100% committed occupancy by year-end. 2.7% of retail leases are set to expire in 2015 and should be a non-event for SUN. 
  • However, we will watch out for the 28.3% of leases set to expire in 2016, which is coming mainly from Suntec City Phase 1. 
  • Management highlighted that most tenants, especially F&B, are doing well and is confident of renewing most of the Phase 1 tenancies. 


Maintain Hold, awaiting details on Park Mall 


  • Maintain Hold, as we think Suntec City could take longer than expected to ramp up. 
  • The recently-announced divestment of Park Mall should be completed by Oct 2015, with the proceeds used to pare down debt and distributed to cushion the downfall in earnings. 
  • We have yet to factor in future acquisition and income from Park Mall, pending further details


(TAN Xuan, CFA; PANG Ti Wee; LOCK Mun Yee)

Source: http://research.itradecimb.com/



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