Suntec REIT - OCBC Investment 2016-01-27: 4Q15 beat on higher distribution from capital

Suntec REIT - OCBC Investment 2016-01-27: 4Q15 beat on higher distribution from capital SUNTEC REIT SUNTEC REAL ESTATE INV TRUST T82U.SI 

Suntec REIT: 4Q15 beat on higher distribution from capital 

 4Q15 DPU grew 6.7% YoY 
 Downside risks remain 
 HOLD with marginally higher FV 

4Q15 results ahead of our expectations 

  • Suntec REIT reported 4Q15 gross revenue of S$87.5m, representing an increase of 13.9% YoY. This was driven by the opening of Phase 3 of Suntec City mall following its AEI completion, coupled with better contribution from Suntec Singapore Convention & Exhibition Centre. 
  • DPU jumped 6.7% YoY to 2.75 S cents, exceeding our expectations. However, the beat came largely because of a distribution from capital amounting to S$8.4m, or 0.332 S cents per unit. 
  • This was higher than the S$6m and S$4.6m capital distribution declared in 2Q15 and 3Q15, respectively. 
  • For FY15, Suntec REIT’s gross revenue grew 16.7% to S$329.5m, and this was 4.5% higher than our forecast, as we had expected its Park Mall divestment to be completed earlier. 
  • DPU increased 6.4% to 10.0 S cents, and was higher than our FY15 projection by 3.1%. 

Progress made but headwinds remain 

  • One of the concerns we had was the significant amount of office leases expiring in 2016 for Suntec REIT’s portfolio. 
  • We note that progress has been made, as there is now 14.9% (~352.6k sq ft) of its NLA due for renewal this year, versus 21.4% as at 30 Sep 2015. 
  • Office leases secured in 4Q15 had an average rent of S$8.86/month, lower than the S$9.21 psf/month committed rents in 3Q15, but management attributed this to the renewal of bigger spaces. 
  • Looking ahead, management expects its office portfolio performance to be stable, although we believe there are downside risks emanating from the subdued macroeconomic environment and large upcoming supply. 
  • On the retail front, overall committed passing rent for Suntec City Mall appears to have stabilised at S$12.04 psf/month (flat QoQ), while 98% committed occupancy has been achieved. 
  • Nevertheless, Suntec REIT still has to focus on the 27% of its retail NLA which is expiring in 2016. 

Maintain HOLD 

  • We make some minor tweaks to our FY16 forecasts, and introduce our FY17 projections. 
  • Rolling forward our valuations, we derive a slightly higher fair value estimate of S$1.51 (previously S$1.50). 
  • Maintain HOLD as we see limited potential upside at this juncture. 

Wong Teck Ching Andy CFA OCBC Securities | 2016-01-27
OCBC Securities SGX Stock Analyst Report HOLD Maintain HOLD 1.51 Up 1.50