SUNTEC REIT - UOB Kay Hian 2017-10-30: 3QFY17 Results Of Suntec In Line

SUNTEC REAL ESTATE INV TRUST T82U.SI

SUNTEC REIT - 3QFY17 Results Of Suntec In Line

Results in line with expectations, maintain HOLD with raised target price of S$2.05 (from S$1.95, required rate of return: 6.7%, terminal growth: 2.3%).
3Q17 DPU of 2.483 S cents was down 2.1% yoy. 3Q17 saw gross revenue and net property income increased by 10.6% yoy and 11.6% yoy, mainly due to the rental contribution of 177 Pacific Highway (Aug 16 completion) and higher contribution from Suntec Singapore.
DPU declined as a result of the greater unit base from the new issue of 95.7m units.

Overall office occupancy stood at 98.6% (2Q17: 98.7%).
The Singapore office portfolio achieved an overall committed occupancy of 99.0%. The committed occupancies for Suntec City Office, One Raffles Quay and Marina Bay Financial Centre Properties were at 98.4%, 99.6% and 100% respectively.
In Australia, the committed occupancies for 177 Pacific Highway and Southgate Complex (Office) were 100% and 89.6% respectively. About 150,000 sf of office NLA was leased this quarter (2Q17: 118,000 sf) with 35% of leases coming from new tenants (up 12ppt from 2Q17).

Singapore office market improved in 3Q17 on the back of stronger economic conditions and positive business sentiment.
With the high occupancy in existing quality buildings and substantial commitments in the newly completed buildings, overall CBD rents increased by 4.3% to S$8.86 psf/mth. However, average rents secured by Suntec during the quarter were down by 3.1% qoq to S$8.61 psf pm due to competition from the secondary space in the market.

Management noted that despite the improvement in retail sales which was driven by improving consumer sentiment and tourist arrivals, retailers in Singapore remained conservative in their demand for retail space.
Overall retail occupancy was down 0.2ppt to 98.8% and tenant retention went down by 10ppt to 63%. About 117,000 sf of leases were signed during the quarter (2Q17: 152,000 sf) with 70% of the leases being new & replacements (up 34ppt qoq).
Management noted that Suntec City Mall’s operational performance continued to strengthen in 3Q17 with high 99.3% committed occupancy, while ytd footfall and tenant sales psf increased by 12.2% and 4.9% yoy respectively. The mall has attracted a number of new-to-market brands in the third quarter and they plan to continue its active tenant adjustments to further strengthen the positioning of Suntec City mall.

Piling works are in progress, with the development scheduled to complete by end-19. The 10-storey building consists two wings with an approximate NLA of 352,000 sf of office space across eight floors and 15,000 sf of retail space on one floor.
The development cost is estimated at S$800m which could result in incremental revenue stream of S$11.9m p.a. for Suntec’s 30% share.
Gearing rose to 36.8% (up by 0.7ppt qoq), while borrowing costs also went up to 2.55% (2Q17: 2.41%).

Vikrant Pandey UOB Kay Hian | http://research.uobkayhian.com/ 2017-10-30

UOB Kay Hian SGX Stock Analyst Report HOLD Maintain HOLD 2.050 Up 1.950