SUNTEC REAL ESTATE INV TRUST
T82U.SI
Suntec REIT (SUN SP) - Retail headwinds showing
Maintain HOLD with TP lowered to SGD1.77
- 3Q16 was a miss due to a lower than expected retail performance.
- We trim DPU by 2.5% and lower TP 2% to SGD1.77 based on an unchanged target yield of 5.5%.
- We believe persistent headwinds to Suntec’s retail business will continue to weigh on income and stock sentiment.
- Maintain HOLD.
- KREIT (BUY, TP SGD1.21) and CCT (BUY, SGD1.81) could outperform Suntec REIT due to better income stability from more favourable office lease expiry profiles and WALE.
Retail performance a miss
- 3Q16 was a marginal miss with 9M16 at 71% of our full-year estimate.
- Retail headwinds appear to have intensified with committed passing rents at Suntec City falling another 3.4% QoQ to SGD11.19 psf pm. Occupancy also dipped by 0.7ppt to 96.8%.
- While management has stepped up promotional activities to enhance retail traffic, uncertain economic conditions could continue to weigh on retail spending.
- Another SGD4m of capital was distributed in the quarter, bringing total non-core distributions to SGD16m in 9M16 (FY15: 19m).
- On a positive note, financing costs trended lower to 2.28% due to a lower funding cost from the 1.75% SGD300m convertible bonds issued and the fall in Swap Offer Rate (SOR).
- No updates were provided for the Park Mall redevelopment.
Offices holding up well
- While retail performance was weak, Suntec’s office portfolio is doing much better.
- Occupancy at Suntec City offices held up well at 98.9% with signing rents inching up by 2.3% to SGD8.78 psf.
- Management continues to guide for a steady office outlook as it believes that convenient access to retail amenities remains a key value proposition to its office tenants.
- ORQ and MBFC were fully leased.
Prefer KREIT and CCT
- We believe stronger WALE for KREIT (6.1 years) and CCT (6.8 years) provides better income visibility over Suntec REIT (FY15: office/retail 3.4/2.2 years).
- With the uncertain macro conditions, we believe income stability remains a priority for investors.
- Furthermore, retail headwinds at Suntec City could continue to weigh on stock sentiment.
Swing Factors
Upside
- Appreciation in capital value of its properties.
- Stabilisation of retail market.
- Earlier than expected rebound in office rents.
Downside
- Sharper than expected declines in office rents or occupancy.
- Overpaying for acquisitions.
- Cost overruns in Park Mall redevelopment.
Derrick Heng CFA
Maybank Kim Eng
|
http://www.maybank-ke.com.sg/
2016-10-21
Maybank Kim Eng
SGX Stock
Analyst Report
1.77
Down
1.810
