Suntec REIT - CIMB Research 2016-04-21: Unwavering against headwinds

Suntec REIT - CIMB Research 2016-04-21: Unwavering against headwinds SUNTEC REIT SUNTEC REAL ESTATE INV TRUST T82U.SI 

Suntec REIT - Unwavering against headwinds 

  • 1QFY16 DPU of 2.37 Scts (+6.3% yoy) was largely within consensus and our expectations, forming 23% of our FY16F estimate. 
  • Distributions were boosted by capital distribution of S$4m from the sale proceeds of Park Mall, confirming our view that SUN’s DPU profile should be stable. 
  • Retail: actively renewing leases for Suntec City Phase 1. Office operating metrics worse off than retail. 
  • Headwinds counterbalanced by resolution to keep dividends steady. Maintain Hold with a slightly higher DDM-based target price of S$1.67. 


■ 1Q16: Higher yoy revenue and NPI 

  • Despite the absence of Park Mall, 1Q16 distributable income from operations was in line yoy at S$56m. This was mainly thanks to the higher revenue and NPI from the completion of Suntec City Phase 3 and Suntec City Office. 
  • Distributions were boosted by capital distribution of S$4m from the sale proceeds of Park Mall, which notched distributable income up by 7.2% yoy. 

■ 1Q16 confirmed our view that SUN’s DPU profile should be stable 

  • With this S$4m capital distribution plus the redemption of S$280m convertible bonds due in 2018 and the 30%-investment in the Park Mall JV (S$115m), we estimate that SUN has S$11m of sales proceeds left. 
  • Taking cue from 1Q16, we believe that the remaining sales proceeds would be utilised to ensure a steady and sustainable DPU profile. We have accordingly factored this into our FY16-17F distributable income. 

■ Retail: actively renewing leases for Suntec City 

  • Phase 1 Committed occupancy for its retail portfolio stood at 98.6% at end-1Q16 (4Q15: 98%, 1Q15: 93.5%). 
  • Suntec City’s committed occupancy stood at 98.7% at 1Q16 (4Q15: 98%, 1Q15: 92.5%). However, renewals are likely signed at lower rates. 
  • 1Q16 overall committed passing rent is S$12 psf (4Q15: S$12.04 psf, 1Q15: S$12.15 psf). It reduced leases expiring in FY16 (mostly for Suntec Phase 1) to 23.1% (end-15: 27%). The mall secured a large tenant which may bring down leases expiring to the high-teens in 2Q16. 

■ Office operating metrics worse off than retail 

  • Committed occupancy for SUN’s office portfolio stood at 98.3% as at end-1Q16 (4Q15: 99.3%, 1Q15: 99.6%). 
  • Suntec office’s committed occupancy stood at 97.5% as at 1Q16 (4Q15: 99.3%, 1Q15: 99.6%). 
  • Leases secured in 1Q16 averaged S$8.67 psf (-2% qoq, - 6% yoy). 
  • SUN signed c.225,000 sq ft of renewal leases in the quarter and brought down its leases expiring in FY16 to 6% (end-15: 14.9%). One of the major off-takers was from the technology sector. 

■ Unwavering against headwinds, Hold maintained 

  • We believe that the headwinds SUN faces (as gleaned from its deteriorating operating metrics) is counterbalanced by its resolution to keep DPU steady. Hence, we maintain a Hold on the stock. 
  • We update our FY16-18 DPU by 0.1-2.5%, leading to a higher DDM-based target price. 
  • SUN trades at 0.8x FY16 P/BV and offers an FY16 dividend yield of 5.9%.



LOCK Mun Yee CIMB Securities | YEO Zhi Bin CIMB Securities | http://research.itradecimb.com/ 2016-04-21
CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 1.67 Up 1.66


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