Tuesday, July 23, 2013

Suntec REIT: Earnings Weaken But DPU Stays Stable (OSK)

SUN: Earnings Weaken But DPU Stays Stable
(BUY, SGD1.53, TP: SGD1.78)
Suntec REIT (SUN)’s 2Q13 revenue and distributable income came in weaker at SGD46.9m (-33.9% y-o-y) and SGD50.9m (-4.0% y-o-y) respectively while DPU for the quarter was a lower 2.25 cents (-4.7% yo-y). All said, we still like SUN In view of the recent reopening of Phase 1 AEI at Suntec City, and maintain our BUY call, with an unchanged DDM-based (COE: 9.6%; TGR:2.0%) TP of SGD1.78 Revenue lower than expected but DPU in line. Owing to the closure of c. 67% of Phases 1 and 2 of Suntec City mall for an asset enhancement initiative (AEI), 2Q13 revenue fell c. 24% short of consensus’ and our forecasts. However, the quarter’s DPU remained largely in line with our estimate, with a deviation of -0.5%, largely attributed to the topping up of 0.35 cents with proceeds from the divestment of Chijmes, a downtown entertainment and dining complex.

Suntec City AEI Phase 1 completed. Phase 1 of the AEI at Suntec City Mall was recently completed. During the results briefing, we learned that Phase 1’s current occupancy is an impressive 99.6%, with an average passing rent of SGD13.09 psf/month - higher than the SGD12.59 psf/month previously indicated, while Phase 2’s AEI remains on schedule, with a precommitted occupancy rate of 70.1%.

Overhang from 4Q13 capital-raising eases. SUN recently announced that it had entered into a SGD500m five-year unsecured facility agreement supported by six banks. As the amount is about SGD100m higher than what the company needs, we believe it will use the excess funds for Phase 3 AEI of Suntec CIty. In view of this, we believe the overhang from the capital-raising exercise in 4Q13 has essentially faded. Even with the additional loan, we believe SUN’s gearing is unlikely to exceed 40% since the mall’s financial worth is likely to grow when it is revalued at the end of this year.

Maintain BUY, with an unchanged TP of SGD1.78. In view of the company’s weak topline in 2Q13, we have pared down our revenue forecast for FY13 by 15%. Over the next two quarters, although revenue may remain volatile, we expect the FY13 forecast DPU of 9.05 cents to remain achievable, since any drop will likely be mitigated by the proceeds from the divestment of Chijmes. As SUN is trading at an attractive projected dividend yield of 5.9% and 6.3% for FY13 and FY14 respectively, while its long-term outlook is positive, we maintain our BUY call, with an unchanged TP of SGD1.78.

Source/Extract/Excerpts/来源/转贴/摘录: OSKResearch,
Publish date: 22/07/13

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