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

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 of Suntec REIT were in line. 
  • Maintain HOLD on Suntec with a higher target price of S$2.05 (from S$1.95). 
  • Maintain sector OVERWEIGHT.

SUNTEC REIT (SUN SP / Rating: HOLD / Target Price: S$2.05) 

  • 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.

Office portfolios are healthy across. 

  • 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 

  • 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.

Retail sector remains cautious. 

  • 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.

Park Mall redevelopment on track. 

  • 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 | 2017-10-30
UOB Kay Hian SGX Stock Analyst Report HOLD Maintain HOLD 2.050 Up 1.950