Suntec REIT - OCBC Investment 2018-04-26: In Stabilisation Mode

Suntec REIT - OCBC Investment 2018-04-26: In Stabilisation Mode SUNTEC REAL ESTATE INV TRUST T82U.SI

Suntec REIT - In Stabilisation Mode

  • Suntec REIT's 1Q18 DPU +0.3% y-o-y.
  • Office rents picking up.
  • Footfall and tenants’ sales continue to impress.

1Q18 results within our expectations

  • Suntec REIT reported its 1Q18 results which met our expectations. 
  • Gross revenue rose 2.6% y-o-y to S$90.7m, while NPI grew 1.9% to S$63.0m. The latter formed 25.1% of our FY18 forecast. Growth was underpinned by higher revenue from Suntec Singapore and an increase in retail revenue from Suntec City mall, but partially offset by weaker office revenue. 
  • DPU for the quarter was flat (+0.3% y-o-y) at 2.433 S cents and constituted 24.2% of our full-year forecast; but was once again boosted by a higher distribution from capital of S$6.5m (1Q17: S$3.0m).

Underlying operations appear firmer

  • Overall portfolio occupancy was firm for its office (99.1%) and retail (98.4%) segments. 
  • Average rents of S$9.02 psf/month and S$8.95 psf/month were secured for its Singapore office portfolio and Suntec City office, respectively. This was a robust 6.1% and 11.5% q-o-q increase, respectively, reversing two consecutive quarters of sequential decline. 
  • We believe rental reversions were flattish in 1Q18, an improved situation as reversions were likely negative in FY17. We expect office spot rents to continue its upward trajectory this year, which augurs well for Suntec REIT. An AEI will also be carried out to upgrade Suntec City Office’s lift lobbies and washrooms in phases beginning 4Q18 for a three-year period. 
  • On the retail front, operating metrics for Suntec City Mall were also bright, with footfall increasing 12.7% y-o-y and tenants’ sales psf improving 5.2% y-o-y.

Share price has corrected sharply

  • Since our downgrade to a ‘SELL’ on 24 Jan 2018 and as of the closing price of S$1.90 on 25 Apr, Suntec REIT’s share price has corrected 11.6%. We believe valuations are less demanding than before, with Suntec REIT now trading at FY18F distribution yield of 5.3%. 
  • We factor in Suntec REIT’s acquisition of an additional 25% interest in Southgate Complex and raise our fair value S$1.81 to S$1.84.
  • (Upgrade to HOLD)

Wong Teck Ching Andy CFA OCBC Investment | http://www.iocbc.com/ 2018-04-26
SGX Stock Analyst Report HOLD Upgrade SELL 1.84 Up 1.810