Suntec REIT - Maybank Kim Eng 2022-01-26: Easing Reversions; FY21 In Line

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SUNTEC REAL ESTATE INV TRUST (SGX:T82U)

Suntec REIT - Easing Reversions; FY21 In Line

• Suntec REIT (SGX:T82U)’s 2H21 DPU rose 9.8% y-o-y/8.6% h-o-h, helped by contributions from its new UK properties and higher income from Suntec City mall. While occupancies were stronger for its Singapore office properties, rental reversions are set to moderate.
• Suntec REIT’s overseas diversification has helped improved its DPU visibility, but gearing remains high versus peers and history, and is likely to cap accretion from further deals. The results were in line with our estimates and the street; we fine-tuned assumptions, and rolled forward valuation to FY22E, to our new DDM-based target price of S$1.45 (COE: 7.8%, LTG: 1.5%).

Retail rental outlook weak

• Performance at Suntec City mall improved further in 4Q21, with revenue +9.6% y-o-y/+16.0% q-o-q (vs +12.8% y-o-y/+2.1% q-o-q in 3Q21) and NPI +3.9% y-o-y/+21.9% q-o-q (vs 75.8% y-o-y/10.3% q-o-q), driven by higher occupancy, which had risen from 90.1% in 4Q20 and were stable at 94.7% (vs 95.0% in 3Q21).
• Rental reversion was softer at -11.8% (from -11.2% in 3Q21 and - 7.2% in 2Q21), better than earlier -15% guidance, but expected to remain weak at -10% in FY22E.
• Recovery in tenant sales (with Dec 2021 above Dec 2019) was ahead of footfall at ~60%, which we expect to see a lift from returning physical office occupancies in FY22.

Singapore office reversion set to ease

• Its Singapore office occupancy increased in Australia improved to 94.2% (from 92.8%), while NPIs are cushioned by rent guarantees at 21 Harris and 477 Collins.

High gearing caps accretion from deals

• Suntec REIT's gearing was lower at 43.7% mentioned, Suntec REIT's gearing is high compared to peers and history, which is likely to limit accretion from further deals.
• See
  • Suntec REIT's Share Price,
  • Suntec REIT's Target Price,
  • Suntec REIT's Analyst Reports,
  • Suntec REIT's Dividend History,
  • Suntec REIT's Announcements,
  • Suntec REIT's Latest News.
• Stay at HOLD for Suntec REIT. We prefer CapitaLand Integrated Commercial Trust (SGX:C38U) (target price S$2.55, see report: CapitaLand Integrated Commercial Trust - Maybank Kim Eng 2021-12-06: Diversifying Down Under) given catalysts from DPU recovery in 2021, and redevelopment upside.

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2022-01-26

SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.45 UP 1.400