Suntec REIT - UOB Kay Hian 2019-01-24: 4Q18 In Line


Suntec REIT - 4Q18 In Line

  • NPI from Suntec REIT’s Suntec City Mall increased 6.5% y-o-y (up 16.3% y-o-y excluding contribution to sinking fund) after completion of asset enhancement. 
  • Maintain HOLD for Suntec REIT (entry price: S$1.83).

Results in line with expectations.

  • SUNTEC REAL ESTATE INV TRUST (SGX:T82U, Suntec REIT) reported 4Q18 DPU of 2.590 S cents (- 0.5% y-o-y), brining 2018 DPU to 9.988 S cents (-0.2% y-o-y), or 101% of our full-year forecast.
  • 4Q18 gross revenue increased 7.0% y-o-y due to higher contributions from Suntec Singapore (convention), 177 Pacific Highway and Suntec City Mall. 4Q18 NPI grew 2.3% y-o-y. Excluding sinking fund contribution of S$4.8m for Suntec City, NPI would have increased10.4% y-o-y in 4Q18.

Boosting distributable income.

  • Capital distribution of S$12.5m accounted for 18% of Suntec REIT’s distributable income in 4Q18. Management intends to continue topping up distributable income, utilising gains of S$70m from the divestment of Park Mall.

Singapore office market expected to improve.

  • The Singapore office portfolio achieved an overall committed occupancy of 98.5% in 2018 (2017: 99.7%). The committed occupancies for Suntec City Office, One Raffles Quay and Marina Bay Financial Centre Properties were 98.6%, 96.1% and 100% respectively. Some 165,000sf of office NLA was leased this quarter (3Q18: 268,00sf) with 48% being new leases (3Q18: 66%). Average rent secured increased 13.8% y-o-y to S$9.14psf pm in 4Q18.
  • Management noted limited supply coming on-stream in 2019, and guided improvements in occupancy and rentals for the Singapore office portfolio. Singapore office portfolio achieved positive rental reversion of 3% in 2018. Management expects another 3% improvement in 2019.

Singapore retail portfolio update.

  • Overall Singapore retail occupancy improved 0.6ppt to 99.0% in 2018, while tenant retention was stable at 55%. About 59,000sf of leases were signed during the quarter (3Q18: 73,000sf) with 42% being new leases. Suntec City Mall achieved positive rental reversion of 10% in 2018. Management expects another 5% improvement in 2019.
  • The repositioning of Suntec City Mall is completed with West Wing, North Wing and East Wing focusing on fashion, sports & wellness and family entertainment respectively. The rejuvenated mall has achieved a 4.8% increase in footfall and 5.2% rise in tenants’ sales. Suntec has developed a QuickGuide app to engage and help shoppers navigate Suntec City Mall.

Australia office market continues on uptrend.

  • 177 Pacific Highway maintained committed occupancy of 100%. Occupancy for Southgate Complex improved 2ppt q-o-q to 98.8% in 4Q18. The office markets in Sydney and Melbourne benefitted from strong occupier demand and limited new supply.

Projects under development.

  • 9 Penang Road (in Singapore) is 60% completed and is expected to fully complete construction by end-19. Management has received offers from prospective anchor tenants.
  • 477 Collins Street (in Melbourne) is 52% completed and is expected to fully complete construction by mid-20. The project has achieved committed occupancy of 65.8%. Including heads of agreement signed to-date representing 16.2% of NLA, total occupancy is 82%.

Management plans to grow through acquisitions.

  • For overseas expansion, management intends to focus on deepening Suntec REIT’s presence in Australia. Suntec REIT has a good track record in Australia and could leverage ARA’s local property management office. Management is likely to focus on Sydney and Melbourne, including CBD fringe.

Healthy balance sheet.

  • Gearing was relatively unchanged at 38.1%. Suntec REIT has completed refinancing of S$1.2b in 2018, which accounted for 34% of its total debt outstanding.

Maintain HOLD

  • Maintain HOLD and target price of S$2.01, based on DDM (required return: 7.0% and terminal growth of 2.3%).
  • Entry price is S$1.83.

Jonathan KOH UOB Kay Hian Research | Peihao LOKE UOB Kay Hian | 2019-01-24
SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.010 SAME 2.010