Suntec REIT - UOB Kay Hian 2018-10-25: 3Q18 In Line


Suntec REIT - 3Q18: In Line

  • Results came in line with expectations.
  • Suntec REIT's 3Q18 income was dragged by lower contributions from 177 Pacific Highway on a weaker AUD.
  • Maintain HOLD with a target price of S$2.01.

Suntec REIT's 3Q18 Results

Results in line with expectations

  • Results in line with expectations, maintain HOLD with target price of S$2.01 (required rate of return: 7.0%, terminal growth: 2.3%).
  • Suntec REIT's 3Q18 DPU of 2.491 S cents was up marginally by 0.3% y-o-y, brining 9M18 DPU to 74.6% of our full-year forecast.
  • 3Q18 saw gross revenue decline by 2.5% y-o-y, due to lower contributions from 177 Pacific Highway (22.2% lower), as a result of the weakened Australian dollar, but partly offset by higher contributions form Suntec Singapore (1.9% higher).

Healthy occupancies across office portfolio.

  • Overall office occupancy stood at 98.9% (2Q18: 99.0%). The Singapore office portfolio achieved an overall committed occupancy of 99.0% (vs 99.8% in 2Q18). The committed occupancies for Suntec City Office, One Raffles Quay and Marina Bay Financial Centre Properties were 99.6%, 96.1% and 100% respectively.
  • In Australia, the committed occupancies for 177 Pacific Highway and Southgate Complex (Office) were 100% and 96.8% respectively.

Singapore office market continued to improve.

  • Management noted the firm leasing market and tightening supply, which saw overall CBD rents grow by 2.3% to S$9.93 psf/mth while overall CBD occupancy increase by 0.8% to 91.6%.
  • Average rents secured by Suntec’s Singapore office portfolio was S$10.16 psf pm (+11.1% q-o-q). Spot rents also continued to improve across all its Singapore properties.

Singapore retail portfolio update.

  • Overall Singapore flat at 98.6% fell by 6ppt to 53%. About 73,000 leases were signed 2Q18: 17962% of the leases being 17ppt q-o-q.
  • Management noted exciting to strengthen City's ecosystem Park, which footprint of playgrounds in Singapore.

Australia office market continues on uptrend

  • .., with the national office CBD occupancy increasing 0.5% to 90.6%. Management noted that leasing activity continues to be positive in Sydney, North Shore, and Melbourne, driven by flight to quality and expansionary activities. They also guided that for 2019, occupancy and rents could remain high, given strong occupier demand and limited new supply.

Gearing increased to 38.2% (vs 37.9% in 2Q18).

  • On our estimates, Suntec REIT has an available debt headroom of S$770m (assuming maximum gearing of 45%).

Projects under development

  • .. include Penang, Singapore (where Steel and structure works are in progress at level end-19. Olderfleet, 477 Collins Street, slab mid-20.

Maintain HOLD with a target price of S$2.01.

  • Our valuation is based on DDM (required rate of return: 7.0%, terminal growth: 2.3%). Entry price: S$1.83.

Peihao LOKE UOB Kay Hian Research | Andrew CHOW CFA UOB Kay Hian | 2018-10-25
SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.010 SAME 2.010