Suntec REIT - UOB Kay Hian 2016-01-27: 4Q15 In Line With Expectations

Suntec REIT - UOB Kay Hian 2016-01-27: 4Q15 In Line With Expectations SUNTEC REIT SUNTEC REAL ESTATE INV TRUST T82U.SI 

Suntec REIT -  4Q15: In Line With Expectations 

  • Suntec REIT reported a 4Q15 DPU of 2.75 S cents, up 6.7% yoy mainly due to the higher revenue and net property income from the completion of Suntec City Phase 3. 
  • Distributable income included S$8.4m payment from capital (sales proceeds from Chijmes). 
  • The results are in line with our expectations with core DPU at 98.7% of our estimate. 
  • Maintain BUY with an unchanged target price of S$1.81 based on DDM (required rate of return: 7.1%, terminal growth: 1.7%). 

• Operational highlights. 

  • Office portfolio occupancies stood at 99.3% levels (+0.4ppt qoq) with signing rents for Suntec office leases in the quarter at S$8.86psf/month (- 3.8% qoq). 
  • The overall committed occupancy for the retail portfolio stood at 97.9% with the committed occupancy for Suntec City at 98% (3Q15:96.4%), with overall committed passing rent of S$12.04. 
  • The debt-to-asset ratio stood at 35.8% whilst the average all-in financing cost was 2.86% for 4Q15 (3Q15:2.74%). 

• Management guidance for positive retail contribution from retail in 2016. 

  • With about one-third of Suntec retail due for renewal this year having rents significantly below market, management remains confident of positive contribution from retail.

• Expect healthy correction in the office segment before pick-up. 

  • Office rents saw continued easing in 4Q15. According to CBRE, Grade-A office rentals declined a further 4.5% qoq in 4Q15 to hit S$10.40 psf pm (3Q15: S$10.90). Guoco Tower has reportedly seen 10% pre-commitment of office space. 
  • The next surge in office supply will arrive in 2H16/2017. Beyond 2018, commercial supply remains meagre at below 0.65m sf (Frasers Tower). We expect a healthy 10-15% correction in office rents before the next leg up. 
  • Suntec REIT’s office portfolio has around 350,000 sf or 15% of space due for renewal in 2016. Management is cautiously optimistic on the office portfolio performance. 

• Management noted that Park Mall sale proceeds would be used to mitigate the shortfall in the lost income. 

  • Redevelopment plans are underway to unlock the underlying value of the property by further enhancing the GFA of the site, taking advantage of the two strips of land acquired and the bonus plot ratio for sites near to MRT stations. 
  • Suntec REIT earlier announced the S$411.8m divestment of Park Mall (total cost: S$245m) and entry into a JV for redevelopment of the property of which Suntec REIT has a 30% interest. 

Vikrant Pandey UOB Kay Hian | Derek Chang UOB Kay Hian | 2016-01-27
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.81 Same 1.81