Suntec REIT - Maybank Kim Eng 2016-07-22: Offices holding up; Retail weakness showing

Suntec REIT - Maybank Kim Eng 2016-07-22: Offices holding up; Retail weakness showing SUNTEC REIT SUNTEC REAL ESTATE INV TRUST T82U.SI 

Suntec REIT (SUN SP) - Offices holding up; Retail weakness showing


Maintain HOLD; TP raised for narrower yield target

  • Suntec REIT mitigated the decline in property income with higher capital distributions. 
  • Occupancy for Suntec City offices improved with the pace of rent decline slowing. 
  • Retail performance was weak with overall passing rents falling by 3.5% QoQ. This was due to negative rental reversions from lease renewals from Phase 1 of the asset enhancement initiatives (AEI). 
  • Our TP is raised to SGD1.69 from SGD1.56 for a 50bps cut in target yield to 6.00%. This reflects yield compression from lower benchmark rates. 
  • Maintain HOLD.


2Q16 in line

  • 2Q16 DPU of 2.50 SGD cts (+5.5% QoQ, +0% YoY) is in line. 1H16 made up 48% of our full-year estimates. 
  • Its revenue and net property income (NPI) declined by 3.1% YoY and 7.5% YoY due to the divestment of Park Mall for redevelopment. This loss of income was partly offset by higher contribution from its retail operations due to the opening of Phase 3 of the mall. 
  • It mitigated the decline in property income with higher capital distribution of SGD8m (2Q15: SGD6m), which made up 12.6% of distributable income in the quarter of SGD63.3m. 
  • ORQ and MBFC enjoyed near full occupancy.


Higher occupancy and stable rents at Suntec offices

  • Occupancy improved by 0.6ppt to 98.1% at Suntec City offices as it continues to fill up spaces vacated by Oracle earlier. The pace of rent decline at Suntec offices slowed. 
  • Signing rents of SGD8.58 psf pm was down 6.1% YoY, but dipped just 1.0% QoQ. 
  • Despite persistent headwinds for Singapore’s office market, management continues to guide for stable performance for its office portfolio.


Lower rents for retail

  • Suntec City Mall’s occupancy dipped slightly to 97.5% due to the exit of some tenants. It signed 165,000 sf of retail leases in the quarter and reduced its lease expiry to just 7.9% for 2016. 
  • Negative rental reversions brought down overall passing rents for the entire mall to SGD11.58 psf pm from SGD12.00 in 1Q16.




Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-07-22
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 1.69 Up 1.56


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