Suntec REIT - UOB Kay Hian 2018-01-25: 4Q17 Results In Line

SUNTEC REIT - UOB Kay Hian 2018-01-25: 4Q17 Results In Line SUNTEC REAL ESTATE INV TRUST T82U.SI

SUNTEC REIT - 4Q17 Results In Line

  • Suntec REIT’s results were in line with expectations.
  • Maintain HOLD with an unchanged target price of S$2.13.

SUNTEC REIT (SUN SP/HOLD/S$2.15/Target: S$2.13) 

Results in line with expectations; maintain HOLD with a target price of S$2.13/share, based on DDM (required return: 6.7% and terminal growth of 2.3%). 

  • The results were in line with expectations with 2017 DPU representing 98.1% of our full-year forecast. 4Q17 DPU of 2.604 S cents was marginally up 0.3% y-o-y. 
  • 4Q17 saw gross revenue and net property income decrease by 1.8% y-o-y and 2.2% y-o-y, mainly due to lower contribution from Suntec Singapore and Suntec City Offices as some of the office leases committed in 4Q17 will commence only in 2018.

Healthy occupancies across office portfolio. 

  • Overall office occupancy increased 0.6 ppt to 99.2% (2016: 98.6%). 
  • The Singapore office portfolio achieved an overall committed occupancy of 99.3% (2016: 99.0%). The committed occupancies for Suntec City Office, One Raffles Quay and Marina Bay Financial Centre Properties were at 98.9%, 100% and 99.8% respectively. 
  • In Australia, the committed occupancies for 177 Pacific Highway and Southgate Complex (Office) were 100% and 90.7% respectively. About 330,000 sf of office NLA was leased in the quarter (3Q17: 150,000 sf), bringing total area leased to 728,000sf in 2017 with 30% of leases coming from new tenants.
  • Management noted that the Singapore office market had improved in 4Q17 on the back of stronger economic conditions and positive business sentiment. However, they are cognisant of the remaining vacant space in the newly-completed buildings and secondary stock in the market. 
  • With the high occupancy in existing quality buildings and substantial commitments in newly-completed buildings, overall CBD rents increased 3.3% to $9.40 psf/mth, according to CBRE. Average rents secured by Suntec were down by 1.2% q-o-q to S$8.50psf pm due to renewal of an anchor tenant space.

Retail sector update. 

  • Shopper traffic increased 12.8% to 45m and tenant sales psf was up 4.8% y-o-y at Suntec City Mall. Committed occupancy was up 1.1% to 99%. Management intends to continue with its strategy of increasing asset utilisation and active tenant adjustment to further strengthen the positioning of Suntec City mall.
  • Average prime rents for Orchard Road and the suburban areas remain unchanged at S$31.30psf/mth and S$28.80psf/mth, translating into full-year declines of 2.6% and 1.9% respectively. Supply of another 1.28m sf and 1.11m sf of retail space are expected to come on stream in 2018 and 2019, keeping downward pressure on retail rents. Although there have been some improvements in consumer sentiments and tourist arrivals, retailers remained cautious in their expansion plans.
  • Projects under development, include 9 Penang Road, Singapore (where sub-structure works are in progress) and expected to complete by end-19, as well as Olderfleet,477 Collins Street, Australia (with level one slab works in progress) and scheduled to complete by mid-20.

Vikrant Pandey UOB Kay Hian | Loke Peihao UOB Kay Hian | 2018-01-25
UOB Kay Hian SGX Stock Analyst Report HOLD Maintain HOLD 2.130 Same 2.130