Suntec REIT - Maybank Research 2022-04-26: Riding Reopening Tailwinds

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SUNTEC REAL ESTATE INV TRUST (SGX:T82U)

Suntec REIT - Riding Reopening Tailwinds

Strong 1Q22, raising our forecasts, target price

• Suntec REIT (SGX:T82U)'s 1Q22 DPU rose 17% y-o-y and 5% q-o-q, driven by improvement at Suntec City, contribution from London’s Minister Building, and resumption of capital distributions (~S$0.2cts per quarter to 4Q23). Occupancy improved with demand recovery, and we expect fundamentals for Suntec REIT’s Singapore office and retail assets to strengthen further following easing of restrictions, reopened borders, and rising rents.
• We raise our FY22-24E DPUs forecast for Suntec REIT by 5-8% on stronger-than-expected results, and visibility on capital distributions.

Retail recovery on firm footing

• Suntec City mall’s performance improved further in 1Q22, with revenue +12.9% y-o-y/+8.4% q-o-q (vs +9.6% y-o-y/+16.0% q-o-q in 4Q21) and NPI +13.3% y-o-y/+33.1% q-o-q (vs +3.9% y-o-y/+21.9% q-o-q). This was underpinned by higher occupancy of 96.0% (from 94.7% in 4Q21) and new tenants (48% of leases, vs 40% in FY21).
• Rental reversion was flat (vs -11.8% in 4Q21), which was better than earlier guidance of -5% to -10%, with the reversion outlook raised to 0-5% for FY22E.
• Domestic demand for consumer and corporate events will remain the key near-term driver for the convention business to reach breakeven, before a MICE-led recovery expected in FY23E.

Singapore office rents set to rise

• Suntec REIT’s Singapore office occupancy increased q-o-q to 97.8% (from 97.5%), with higher occupancy at Suntec (97.2% to 98.6%) and MBFC Tower 1&2 (97.3% to 97.6%). Rental reversion was +5.3% in 1Q22 (from +3.2% in FY21), and +1.9% at Suntec office (from +2.2%). Demand is strong and continues to be led by tech and FIs.
• We expect reversions to ease, while staying slightly positive, given the higher expiring rents (at S$9.38 psfpm vs S$9.26 psfpm passing rents).
• Occupancy in Australia/UK was stable at 94.3%/98.3%, with NPIs well-cushioned by rent guarantees at 21 Harris and 477 Collins, and visibility backed by a long 10.4-year WALE.

Gearing fell, eyeing AUM growth

• Suntec REIT's NAV rose 1% while gearing narrowed to 43.3% (from 43.7% as at end-Dec 2021), as its all-in debt cost was call on Suntec REIT.
• 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.

Chua Su Tye Maybank Research | https://www.maybank-ke.com.sg/ 2022-04-26

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