Suntec REIT (SUN SP) - Maybank Kim Eng 2018-04-25: Stable Showing

Suntec REIT (SUN SP) - Maybank Kim Eng 2018-04-25: Stable Showing SUNTEC REAL ESTATE INV TRUST T82U.SI

Suntec REIT (SUN SP) - Stable Showing


Raising Target Price to SGD1.94 on DPU uplift; Maintain HOLD

  • Suntec REIT's 1Q18 distributable income came in line at 24% of our forecast. Its retail and convention centre businesses were the key drivers of performance this quarter. While headline contributions from its offices were soft due to transitory downtime, committed occupancy and signing rents remain healthy. 
  • It will be acquiring another 25% stake in Southgate Complex by end-May 2018 and we raise FY18-20E DPU by 1% accordingly. Consequently, our Target Price is lifted to SGD1.94, based on unchanged target yield of 5.25%. Maintain HOLD. 
  • Prefer developer landlords, UOL Group and GuocoLand, for office exposure.



Good retail and convention centre showing

  • Suntec REIT's 1Q18 DPU of 2.43 cts in line at 24% of our full year forecasts. 
  • Suntec City’s retail and convention centre businesses did well with NPI rising by 5.9% y-o-y and 69% respectively. 
  • Key operating metrics continue to improve with shopper traffic and tenant sales improving by 12.7% and 5.2% y-o-y respectively. Committed occupancy also held steady at 98.6%.


Headline weakness for offices

  • Headline revenue for Suntec City Offices fell by 4.4% y-o-y and was a drag on the portfolio’s performance. Nonetheless, management guides that top line weakness was due to transitory downtime from replacement leases. 
  • Committed occupancy at Suntec City Offices remains high at 99.1% with healthy signing rents of SGD8.95 psf pm. 
  • Contribution from JVs fell 6.5% y-o-y largely due to base effects from one-off items in 1Q17 at One Raffles Quay.


Acquiring another 25% stake in Southgate Complex

  • During the quarter, Dexus (DXS AU, Not Rated) has exercised its put option to sell the remaining 50% stake in Southgate Complex to Southgate Trust - a 50%-owned JV of Suntec REIT. By end-May 2018, Suntec REIT will invest another AUD144.5m for the 25% effective stake in the Melbourne property. 
  • Based on the distributions of SGD7.4m received in 2017 from its initial investment, this incremental stake translates into a return of about 5%.


Swing Factors 


Upside 

  • Appreciation in the capital value of its properties. 
  • Stabilisation of the 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 | http://www.maybank-ke.com.sg/ 2018-04-25
SGX Stock Analyst Report HOLD Maintain HOLD 1.94 Up 1.910



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