Thursday, July 25, 2013

Suntec REIT: Recovery possibly in sight (OCBC)

Suntec REIT:
Fair value S$1.85
add: 12m dividend forecast S$0.092
versus: Current price S$1.53

Recovery possibly in sight
• 2Q13 DPU up 0.9% QoQ
• Portfolio occupancy remains high
• S$13.09 passing rents post Phase 1 AEI

Suntec REIT’s 2Q13 DPU was up 0.9% QoQ (-4.7% YoY) to 2.249 S cents, helped by a S$7.8m capital distribution from Chijmes sale proceeds. For 1H13, DPU amounted to 4.477 S cents, down 7.0% YoY and 4.3% HoH, and formed 48.1% of our full-year DPU forecasts. This is broadly in line with our expectations, as Suntec REIT’s financial performance is likely to improve going forward now that the Phase 1 space has become operational in Jun. For the first time,
Suntec REIT shared that SCM Phase 1 has achieved a passing rent of S$13.09 psf pm. This, we note, is higher than the rates of S$11.31 secured at the rest of SCM and S$12.59 projected for the AEI project. Committed occupancy at SCM Phase 1 now stands at 99.6%, while pre-commitment at Phase 2 has risen from 53.0% in 1Q to 70.1%. We tweak our model to incorporate the results and higher market risk free rates. While our fair value drops to S$1.85 from S$2.16, we view that current valuations are compelling. Maintain BUY on Suntec REIT.

Worst may be over
Despite arguably the weakest quarter in the remaking of Suntec City, Suntec REIT ended 2Q13 on a relatively positive note. Both Phase 1 and 2 of the asset enhancement initiatives (AEIs) were executed concurrently, but NPI was only down 8.9% QoQ (-38.5% YoY) to S$28.0m, while distributable income was down 9.5% QoQ (-18.7% YoY) to S$43.1m. DPU, on the other hand, was up 0.9% QoQ (-4.7% YoY) to 2.249 S cents, helped by a S$7.8m capital distribution from Chijmes sale proceeds (1Q: S$2.7m). For 1H13, DPU amounted to 4.477 S cents, down 7.0% YoY and 4.3% HoH, and formed 48.1% of our FY13F DPU. This is broadly in line with our expectations, as the financial performance is likely to improve going forward now that the Phase 1 has become operational in Jun.

Continued strength at office segment
The retail segment contributed ~28% of Suntec REIT’s 2Q gross revenue. This represents a decline from ~36% contribution in 1Q, dragged down partly by a 53.5% YoY drop in retail revenue amid the partial closure of Suntec City Mall (SCM). In addition, the office segment achieved positive rental reversions, hence driving the office revenue up by 3.2%. Management updated that only 6.3% of its office leases is due to expire in 2013, after signing a total of 198,000sqft of space at an average of S$8.42 psf pm (1Q: S$8.55). As at 30 Jun, both the office and retail (unaffected by AEI) portfolio occupancy rates were maintained at high levels of 99.7% and 99.6% respectively. This would likely continue to cushion any volatility in its rental income, in our view.

Maintain BUY
For the first time, Suntec REIT also shared that SCM Phase 1 has achieved a passing rent of S$13.09 psf pm. This is higher than the rates of S$11.31 secured at the rest of SCM and S$12.59 projected for the AEI project. Committed occupancy at Phase 1 now stands at 99.6%, while pre-commitment at Phase 2 has risen from 53.0% in 1Q to 70.1%. We tweak our model to incorporate the results and higher market risk free rates. While our fair value drops to S$1.85 from S$2.16, we view current valuations as compelling. Maintain BUY.


Source/Extract/Excerpts/来源/转贴/摘录: OCBC-Research,
Publish date: 22/07/13

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