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/
