SUNTEC REAL ESTATE INV TRUST (SGX:T82U)
Suntec REIT - 3Q19 Growth From Suntec City & Marina Bay Financial Centre
- Suntec REIT reported 3Q19 DPU of 2.365 S cents, down 5.1% y-o-y.
- Revenue from Suntec City grew 4.5% y-o-y while contribution from MBFC expanded 18% y-o-y. However, capital distribution declined 35% y-o-y to S$6.5m.
- Suntec City Office, MBFC and ORQ will benefit from positive rental reversion for offices in Singapore. Development projects 9 Penang Road and 477 Collins Street are scheduled to complete in 4Q19 and mid-20 respectively.
- Maintain HOLD. Target price: S$1.99. Entry price: S$1.82.
Suntec REIT 3Q19 RESULTS
- SUNTEC REIT (SGX:T82U) reported DPU of 2.365 S cents for 3Q19 (-5.1% y-o-y), bringing 9M19 DPU to 7.16 S cents (-3.2% y-o-y). See Suntec REIT Announcements.
- This is in line with our forecast of 7.16 S cents for 9M19 and represents 75.3% of our full-year forecast. See Suntec REIT Dividend History.
Office: Tight vacancies within core CBD sustain positive rental reversion.
- Revenue from Suntec City Office increased 4.1% y-o-y. New and renewal leases with NLA of 147,000sf were signed in 3Q19, the sixth consecutive quarter of positive rent reversion. Committed rents were S$9.50-11.00psf pm, 16-34% higher than expired rents. New demand came mainly from technology, media & telecommunications and co-working operators.
- Committed occupancy for the Singapore office portfolio stood at 99.0% as of Sep 19. The acquisition of 55 Currie Street was completed on 10 Sep 19 and made maiden contribution of S$0.9m.
Retail: Continuing to benefit from repositioning.
- Revenue from Suntec City Mall increased 4.6% y-o-y. Rental reversion was 4.6% in 3Q19, the ninth consecutive quarter of positive reversion. Retention ratio was 63%. Committed occupancy was healthy at 98.1%. Footfall and tenants’ sales grew 3.8% and 0.8% y-o-y respectively in 9M19.
Convention: Competition for hosting of major events.
- Revenue from Suntec Convention declined 3.1% y-o-y due to smaller-scale events.
- Finance expense increased 11.7% y-o-y to S$28.2m.
Increased contributions from JVs.
- Contribution from JVs increased 14.4% y-o-y in 3Q19, driven by Southgate Complex (+14% y-o-y, committed office occupancy improved 3.2ppt y-o-y to 100%) and Marina Bay Financial Centre (MBFC, +18% y-o-y, higher rentals and one-off compensation from early termination).
- MBFC’s occupancy declined 1.5ppt q-o-q to 98.5% due to space rationalisation by tenant. Contribution from for One Raffles Quay (ORQ) increased 6.2% y-o-y.
Healthy balance sheet.
- Gearing was relatively unchanged at 38.2%. There is no refinancing requirement in 2019 and only 8.6% of total debts are due in 2020.
STOCK IMPACT
9 Penang Road on track to complete by 4Q19.
- The two office towers with NLA of 381,000sf were 100% pre-leased to UBS with target occupation in 2H20. The retail component will be predominantly F&B and negotiations are in progress.
Practical completion for 477 Collins Street expected by mid-20.
- Olderfleet at 477 Collins Street in Melbourne has reached key milestone with topping out of the building structure on 31 Jul 19. Tenants’ fit-out works are in progress. Pre-committed occupancy has increased to 92%. Tenants include Deloitte, Lander & Rogers, Norton Rose Fulbright and Urbis.
More AEI works for Suntec City Office.
- Management will continue with proactive asset management to strengthen the office portfolio. Ongoing works (main lobby, lift lobby and washrooms) at Suntec City Office upgrading will fully complete in 2021 (which will further enhance Suntec City’s competitiveness and meet tenants’ needs.
Scaling up in developed overseas markets.
- Suntec REIT lacks an acquisition pipeline in Singapore. Management is keen to scale up in Australia as sponsor ARA has a ground presence for asset management and property management. Management is also open to explore opportunities in gateway cities in Europe, such as London, Paris, Frankfurt and Munich.
- Overseas markets have expanded from 11% to 23% of AUM post acquisitions of 21 Harris Street and 55 Currie Street. Management aims to expand the proportion of overseas AUM to 30-40% over the next five years.
EARNINGS REVISION/RISK
- We maintain our earnings forecasts.
VALUATION/RECOMMENDATION
- Maintain HOLD with a higher target price of S$1.99, based on DDM (required return: 5.75% and terminal growth of 1.0%). Entry price is S$1.82.
- See Suntec REIT Share Price; Suntec REIT Target Price.
SHARE PRICE CATALYST
- Contributions from yield-accretive acquisitions.
- Positive newsflow on office and retail capital values, AEI, tenant movements and renewals, rentals and occupancy.
Jonathan KOH CFA
UOB Kay Hian Research
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Peihao LOKE
UOB Kay Hian
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https://research.uobkayhian.com/
2019-10-25
SGX Stock
Analyst Report
1.99
UP
1.960
