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%.

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.

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.

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.

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.

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 | http://research.itradecimb.com/ 2016-01-27

CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 1.66 Down 1.73