SUNTEC REAL ESTATE INV TRUST (SGX:T82U)
Suntec REIT - Rent Rise On Reopening
Strong 1H22, fundamentals intact
- Suntec REIT (SGX:T82U)'s 2Q22 DPU rose 15% y-o-y and 1% q-o-q, driven by improvement at Suntec City and contribution from its London properties. Occupancy improved with demand recovery, and we expect fundamentals for Suntec REIT’s office and retail assets to strengthen further with rising rents. The results were slightly ahead and we raise our DPU forecasts by 1-2% on a stronger rent recovery.
- Suntec REIT's gearing remains high and could prompt capital recycling; we see favourable risk-reward at ~6% yield and visibility on capital distributions (~S$0.002 per quarter to 4Q23).
Retail recovery gaining traction
- Suntec City mall’s performance improved further in 2Q22 with revenue at +30% y-o-y/+1% q-o-q and NPI at +51% y-o-y/-1% q-o-q, underpinned by higher occupancy of 96.1% (vs 96.0% in 1Q22 and 93.9% in 2Q21) and new tenants (31% in 1H22, vs 48% in 1Q22).
- Rental reversion was better at +3.0% in 2Q22 (vs 0% in 1Q22), and management has maintained its earlier guidance of 0-5% for FY22E.
- An AEI to improve traffic flow and tenant mix at the east wing by 4Q22 should add 13% to its NLA and deliver 15% ROI.
- The convention business has turned around after 10 quarters, and should reach breakeven for FY22, before a MICE-led recovery expected next year.
Office recovery on demand tailwinds
- Suntec REIT's Singapore office occupancy remained high at 97.8% in 2Q22, driven by higher occupancy at Suntec (98.6% to 99.4%).
- Rental reversion rose to +5.7% in 2Q22 (vs +5.3% in 1Q22), and +3.9% at Suntec office (from +1.9%). Demand is strong and continues to be driven by tech and FIs.
- We expect reversions could ease, while staying slightly positive, even as Suntec REIT signed rents above S$10psfpm, vs its expiring rents (at S$9.31-9.59psfpm) and passing rents (S$9.28psfpm).
- Occupancy was stable in the UK (at 98.3%) and it improved in Australia (from 94.3% to 95.0%), with leases renewed at +10% reversion and backfilling at 177 Collins at +30-35%.
Gearing fell, eyeing capital recycling
- Suntec REIT's gearing was lower at 43.1% (from 43.3% as at end-Mar 2022), while its fixed-rate debt was higher at S$1.85 (COE: 6.8%, LTG: 2%). Maintain BUY.
- See
Chua Su Tye
Maybank Research
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https://www.maybank-ke.com.sg/
2022-07-27
SGX Stock
Analyst Report
1.85
UP
1.800
