Suntec REIT - CGS-CIMB Research 2021-04-23: Slowly Recovering

SUNTEC REAL ESTATE INV TRUST (SGX:T82U)

Suntec REIT - Slowly Recovering

Suntec REIT's 1Q21 DPU of S$0.02045 is within expectations at 25% of our FY21F forecast.
Higher office income offset drag from retail and convention segments.
Reiterate ADD rating with an unchanged DDM-based target price of S$1.76.

Suntec REIT (SGX:T82U) reported 1Q21 gross revenue of S$87.1m (+0.2% y-o-y) while distribution income from operations rose 5.4% y-o-y to S$58.1m. 1Q21 DPU rose a higher 16.2% y-o-y to S$0.02045 due to a higher distribution income from operations and absence of retained income. See Suntec REIT's announcements.
The better operating performance was due to higher office income, stronger A$ and lower financing cost, partly offset by lower retail contributions.
Suntec REIT’s gearing stands at 44.4% and management aims to strengthen balance sheet through active capital management.

The office segment, including JV contributions, saw a 29.9% y-o-y jump in NPI, thanks to stronger A$, new contributions from 9 Penang Road and recently acquired/completed properties in Australia and UK.
Singapore office portfolio continued to be well occupied at 96.1% at end-1Q21. Suntec REIT has 16.9% and 18.4% of Singapore office leases expiring for the remainder of FY21F and FY22F, respectively. In 1Q, Suntec REIT leased 144.2k sq ft of office space, the bulk of which are from Suntec Office and are new leases. The property delivered a rental reversion of -0.9% in 1Q, but management guided that it expects to achieve positive reversions for FY21F, given the low expiring rent of S$8.73psf.
Occupancy for Australia office portfolio stood at 93.9% while Nova Properties in UK is fully occupied at end-1Q. With minimal expiries of 3.9% and 2.3% of non-Singapore office portfolio NLA to be re-contracted in 9MFY21-22F and > 75% of its A$ income hedged at end-1Q21, we anticipate stable income from Suntec REIT’s office portfolio.

1Q21 retail NPI fell 24.1% y-o-y to S$17.3m, due mainly to lower revenue from Suntec Mall and rental assistance provided for retail tenants at Southgate Complex in Australia. There was also a S$2.5m loss from Suntec Convention.
Committed occupancy at Suntec Mall was 91.5% at end-1Q but management expects overall mall occupancy to trend closer to 95% by end-FY21F as new-to-Suntec and new-to-market brands commence operations throughout the year.
In Mar 2021, tenant sales at Suntec Mall recovered close to 92% (81% on a same-store basis) and may reach FY19 levels with uneven recovery across different trade sectors. Meanwhile, Mar 2021 shopper traffic recovered to 66% of 2019 levels and management expects it could reach 80% by year-end.
Rental reversion in 1Q averaged - 26.2% (-16% excluding anchor leases). Suntec Mall has a remaining 14.3% and 20.7% of leases expiring in 9MFY21F and FY22F and we anticipate the negative rent reversion to persist.
Suntec REIT is also undertaking a comprehensive business review to identify medium-and long-term opportunities to pivot Suntec Convention’s core business.

We leave our FY21-22F DPU estimates for Suntec REIT unchanged and retain our DDM-based target price of S$1.76. At 5.3% FY21F dividend yield, we think the current Suntec REIT Share Price has factored in much of the near-term earnings drag and we maintain our ADD call.
See
Re-rating catalyst: faster-than-expected recovery of its retail and convention business from COVID-19 disruption.
Downside risk: higher-than-estimated rental waivers to tenants.

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-04-23

SGX Stock Analyst Report ADD MAINTAIN ADD 1.760 SAME 1.760