Suntec REIT - UOB Kay Hian 2018-04-26: 1Q18 Results In Line

Suntec REIT - UOB Kay Hian 2018-04-26: 1q18 Results In Line SUNTEC REAL ESTATE INV TRUST T82U.SI

Suntec REIT - 1Q18 Results In Line

  • Results of Suntec REIT came in in line with expectations.
  • Suntec’s 1Q18 income was driven by higher contributions from Singapore office and retail spaces.
  • Maintain HOLD with an unchanged target price of S$2.13.


  • Results in line with expectations, maintain HOLD with DDM-based target price of S$2.13 (required rate of return: 6.7%, terminal growth: 2.3%). 1Q18 headline DPU of 2.433 S cents was up marginally by 0.3% y-o-y. Excluding capital distributions, core DPU of 2.189 S cents was down by 5.1% y-o-y. 1Q18 top-line grew 2.6% y-o-y, mainly due to higher contribution from Suntec Singapore and Suntec City mall, but partially offset by revenue from Suntec City Office (due to transitory downtime from replacement leases commencing progressively from Mar 2018). NPI also increased by 1.9% y-o-y, due to higher contributions from Suntec Singapore. The results were within expectations, with 1Q18 DPU representing 24.5% of our full-year forecast.
  • Healthy occupancies across office portfolio. Overall office occupancy stood at 99.1% (4Q17: 99.2%). The Singapore office portfolio achieved an overall committed occupancy of 99.5%. The committed occupancies for Suntec City Office, One Raffles Quay and Marina Bay Financial Centre Properties were at 99.1%, 100% and 100% respectively. In Australia, the committed occupancies for 177 Pacific Highway and Southgate Complex (Office) were 100% and 92.5% respectively. About 89,000 sf of office NLA was leased in % of leases coming from new tenants (down 1.39ppt from 4Q17). That leaves 9% balance of total NLA expiring in 2018.
  • Management noted that Singapore office market improved in 1Q18, with the overall CBD rents growing 3% to S$9.51 psf pm, driven by the increase in pre-commitment rates for developments scheduled to complete in 2018. There are also signs of improving business confidence from the banking and professional services sectors, which could lend further support to the recovery. Average rents secured at Suntec City Office during the quarter were up by 11.5% q-o-q, to S$8.95 psf pm.
  • Singapore retail rents see signs of bottoming. Management noted that the Singapore retail market stabilised in 1Q18, as growth in Singapore's economy lifted business sentiments and bolstered occupier demand. Suntec City Mall's committed occupancy declined marginally in 1Q18 to 98.6% (vs 99% in 4Q17), while footfall and tenant sales psf registered 12.7% and 5.2% y-o-y growth respectively.
  • Prime retail rents in Orchard Road and Suburban areas also stabilised at S$31.30 (0%q-o-q, -2.6% y-o-y) and S$28.80 psf/mth (0% q-o-q, -1.9% y-o-y) respectively, according to CBRE. Another 1.28m sf and 1.11m sf of retail space is expected to come on-stream in 2018 and 2019. We believe that the sector is poised for a recovery, if improvements in retail sales, receipts, and tourist arrivals persist.
  • Australia office market continues on uptrend, with the national office CBD occupancy increasing by 0.5% q-o-q to 89.6% in 4Q17. Driven by flight to quality and expansionary activities, occupier demand also continues to be positive in Sydney, North Shore, and Melbourne office markets. Occupancy and rental growth are expected to continue, on the back of strong occupier demand and limited new supply.
  • Navigation initiatives. Management implemented the “QuickGuide”, “QuickChat” and “QuickFind” initiatives to improve navigation at its Suntec properties. The QuickGuide is a web-based interactive in-mall directory with advanced search function to locate shops/brands/products/services, while “QuickChat” is a real time chat application to reach out to customer service officers. There are also kiosks (“QuickFind”) stationed at carpark lobby entrances to help drivers locate their vehicles. We believe that such initiatives will continue to enhance the appeal of Suntec properties, and increase footfall.
  • 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 | http://research.uobkayhian.com/ 2018-04-26
SGX Stock Analyst Report HOLD Maintain HOLD 2.130 Same 2.130