Suntec REIT - CIMB Research 2016-01-27: Resilient 4Q15

Suntec REIT - CIMB Research 2016-01-27: Resilient 4Q15 SUNTEC REIT SUNTEC REAL ESTATE INV TRUST T82U.SI 

Suntec REIT - Resilient 4Q15 

  • 4QFY15 DPU of 2.75 Scts (+6.7% yoy) met our expectation, forming 28% of our fullyear forecast. FY15 DPU of 10 Scts formed 100% of our forecast. 
  • Retail continues to ramp up, with the opening of Suntec City mall Phase 3. We are watchful of the 27% of retail NLA to be renewed in FY16. 
  • Signed an impressive c.710,000 sq ft of office renewal in FY15, reducing office NLA expiring in FY16 to 14.9%. 
  • Maintain Hold with a lower DDM-based target price of S$1.66. 

■ A resilient 4Q15 

  • SUN recorded a 7% yoy rise in 4Q15 DPU to 2.75 Scts, bringing FY15 DPU to 10 Scts (+6% yoy). 
  • The improvement came from the opening of Suntec City mall P3 and capital distribution of S$8.4m (from the disposal of Chijmes). With the opening of P3, NPI margin climbed up 2.4% pts yoy to 71.4%. 
  • Income contribution from ORQ and MBFC properties dropped 15% yoy to S$23.6m due to lower distribution income from MBFC and one-offs in the preceding year. Income support from MBFC should end by end-15. 

■ Retail continues to ramp up; some uncertainty in FY16 

  • Led by retail, 4Q15 gross revenue grew 14% yoy to S$87.5m. Retail revenue expanded 19% yoy to S$27m due to P3, while retail occupancy ticked up 1.4% pts qoq to 97.9%. 
  • Overall committed passing retail rent was S$12.04psf/mth, lower than the targeted S$12.59psf/mth due to the ongoing retail headwinds. For 2016, 27% of retail NLA (255,673 sq ft) is to be renewed, and this stems largely from Suntec City mall P1. 
  • We think that there could be some uncertainty from FY16 retail renewals. 

■ Some tenants vacating at Park Mall 

  • 4Q15 office revenue of S$35m was 3% higher yoy due to positive rental reversions. Committed occupancy for Suntec Office was maintained at 99.3%. 
  • For Park Mall Office, the committed occupancy fell to 92.2% (3Q15: 95.8%). Some of the tenants did not renew their leases as Park Mall should be redeveloped by end-16. From now until then, management is focusing on maintaining occupancies for Park Mall. 

■ Solid office renewals 

  • SUN signed an impressive c.710,000 sq ft of renewal and replacement leases in FY15, and reduced office NLA to be renewed in FY16 to 14.9% or 352,604 sq ft (3Q15: 21.4%). 
  • The leases secured for 4Q were at an average rent of S$8.86psf/mth, lower than the S$9.21psf/mth achieved in 3Q as larger spaces in 4Q were committed. 
  • We think that office rents in FY16 should remain at the sub-S$9 levels. Also, 177 Highway is expected to open in six months, and mainly accounted for the S$129m revaluation gains in FY15. 

■ Maintain Hold with a lower target price of S$1.66 

  • We tweak up our FY16-17 DPU by 3%. 
  • With the hefty capital gain from the disposal of Park Mall, we believe that the REIT could top up dividends to ensure a stable and sustainable DPU profile. 
  • We maintain Hold on the stock, with a lower DDM-based target price as we raise our equity discount rate, in line with the sector re-alignment.

LOCK Mun Yee CIMB Securities | YEO Zhi Bin CIMB Securities | 2016-01-27
CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 1.66 Down 1.73