SUNTEC REAL ESTATE INV TRUST
T82U.SI
Suntec REIT (SUN SP) - Acceleration In Footfall At Suntec City Mall
Maintain HOLD; Peak valuation justified by bottoming office market
- 3Q17 was in line at 75% of our full-year estimates.
- Stronger operational performance at Suntec City Mall was a key positive with near full occupancy and acceleration in footfall.
- We raise FY17-19E DPU by < 1%. We roll forward our valuation basis and raise our TP to SGD1.84, based on a target yield of 5.25% (from 5.5%).
- The narrower yield target reflects a more resilient operational performance and is in line with our valuation basis for Keppel REIT. Prefer CapitaLand Commercial Trust CCT for sector exposure.
Results in line; DPU dipped on enlarged share base
- Despite a 2.4% YoY increase in distributable income, DPU dipped by 2.1% due to an enlarged share base after the CB conversions that took place in May. However, this also led to a 100bps YoY improvement to its gearing ratio.
- The slight dip in contribution from its ORQ and MBFC JVs is not a concern as it was off a higher base with one-off items.
- Nonetheless, we noticed a 6.5ppt dip in occupancy at Marina Bay Link Mall to 93%, which may have made a small dent to its underlying income.
Resilience at Suntec City Mall; Stronger footfall
- Amidst the ongoing retail headwinds, operational performance at Suntec City Mall was more resilient than expected. Committed occupancy was robust at 99.3%, which is a marked improvement from 98% at start of the year.
- Footfall at the mall accelerated with shopper traffic improving to 12.2% YoY in 9M17 (vs 11.0% in 1H17, 7.3% in 1Q17). Growth in tenant sales is tracking 5% YoY.
Consultants flagged a slight uptick in Grade A rents
- Preliminary data from CBRE showed a slight 1.7% QoQ increase in Grade A rents in the quarter to SGD9.10 psf. While the office market has clearly bottomed, near-term upside to rents could be limited as vacancy levels remain high.
- Nonetheless, with 18%/15% of office leases up for renewal in 2018/19, a stronger-than-expected pick up in the office market could present upside risk to earnings.
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
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http://www.maybank-ke.com.sg/
2017-10-27
Maybank Kim Eng
SGX Stock
Analyst Report
1.800
Same
1.800
