Suntec REIT - RHB Invest 2015-10-23: Declining Rents In Suntec City AEI

Suntec REIT - RHB Invest 2015-10-23: Declining Rents In Suntec City AEI SUNTEC REIT SUNTEC REAL ESTATE INV TRUST T82U.SI 

Suntec REIT - Declining Rents In Suntec City AEI 

  • Results were in line with our expectations as Suntec REIT announced 3Q/9M15 DPU growth of 8.3/6.3% YoY, accounting for c.74% of our full year estimates. 
  • We maintain our SELL recommendation with an unchanged target price of SGD1.31, since we remain cautious as Suntec REIT faces more than 40% of its total office space for lease renewal in the next 2 years. 
  • In addition, we note that the overall passing rent for Suntec City AEI has declined to SGD12.03psf/mth, or 4.4% below its initial target. 


 3Q15 results in line with our expectations. 

  • Suntec REIT’s 3Q/9M15 DPU grew 8.3/6.3% YoY, and accounted for c.74% of our full-year estimate. Suntec REIT has topped up c.0.040 cents, or SGD36.5m since 1Q13. Recall that Suntec REIT received cash proceeds of SGD147m and booked SGD29.7m of divestment gains from the sale of Chijmes in 1Q12. Stripping off the DPU top up, 3Q/9M15 DPU grew by only 2.3% YoY for the quarter. 

 Overall the committed passing rent for Suntec City AEI is below the initial target of SGD12.59 psf/mth. 

  • As Suntec REIT celebrates its official opening of Suntec City, the overall committed occupancy for its AEI inched up slightly to 96.4% (previous: 93.6%). We also note that overall passing rent has declined to SGD12.03 psf/mth, which is 4.4% below its initial target of SGD12.59 psf/mth. 

 Over 40% of its total office space is up for renewal in the next two years. 

  • Suntec REIT has little concerns over renewal for the remaining of this year, as it has a mere 1.4% and 1.6% of total office and retail net lettable area (NLA) respectively. However, given our expectation of a downturn in the office rental market, we are cautious over Suntec REIT’s office leases expiring in the next two years as it constitutes a significant 40.4% of its total office NLA. 

 Maintain SELL with a DDM-derived TP of SGD1.31. 

  • In addition to a pessimistic view of the office rental market, we are also wary of its redevelopment effort on assets such as Park Mall (target completion: 2019), which may only be beneficial to Suntec REIT in the long run. 
  • As a result, we maintain our SELL recommendation with a DDM-derived TP of SGD1.31 which represents a total negative return of approximately 14% vs the current price.


Ivan Looi RHB Research | Ong Kian Lin RHB Research | http://www.rhbinvest.com.sg/ 2015-10-23
RHB Research SGX Stock Analyst Report SELL Maintain SELL 1.31 SAME 1.31


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