Wednesday, August 28, 2013

Suntec REIT: New city taking shape (OCBC)

Suntec REIT:
Fair value S$1.80
add: 12m dividend forecast S$0.092
versus: Current price S$1.51

New city taking shape
• Further progress on refinancing
• Performance likely to improve
• Valuations remain compelling

Suntec REIT announced on 15 Aug that it has established a US$1.5b Euro Medium Term Note programme. We believe Suntec REIT may use this to address part of its refinancing needs due in 2014. If so, this will lock in part of its debts into fixed rates, enhance its debt maturity profile and improve its unencumbered asset ratio.
Looking ahead, we remain positive on Suntec REIT’s performance. While its 2Q13 NPI and distributable income were down 38.5% and 18.7% YoY respectively due to the concurrent execution of Phases 1 and 2 of the remaking of Suntec City, we believe that the worst is likely over given that Phase 1 enhancement works were completed in Jun and the retail space there has since become operational. At current price, Suntec REIT trades at one of the lowest P/B in the S-REITs sector at 0.73x, while offering a compelling FY14F yield of 6.9%. We are revising our fair value from S$1.85 to S$1.80 due to higher risk-free rate. As valuations remain attractive and outlook is positive, we maintain BUY on Suntec REIT.

Establishment of Euro MTN programme
Suntec REIT announced on 15 Aug that it has established a US$1.5b Euro Medium Term Note programme, with ANZ Bank, Citigroup Global Markets, DBS Bank and Standard Chartered Bank as arrangers and dealers for the exercise. This comes promptly after Suntec REIT has secured a S$500m five-year unsecured loan facility in Jul to refinance all its borrowings maturing in Oct 2013. We believe that Suntec REIT may possibly make use of the programme to issue longer-term unsecured notes to address (part of) its refinancing needs (S$773.5m club loan) due in 2014. This will be a positive development in our view, as Suntec REIT will not only be able to lock in part of its debts into fixed rates, enhance its debt maturity profile but also improve its unencumbered asset ratio. The programme has been assigned a “Baa2” rating by Moody’s Investors Service.

Worst may be over
Looking ahead, we remain positive on Suntec REIT’s performance. While its 2Q13 NPI and distributable income were down 38.5% and 18.7% YoY respectively due to the concurrent execution of Phases 1 and 2 of the remaking of Suntec City, we believe that the worst is likely over given that Phase 1 enhancement works were completed in Jun and the retail space there has since become operational. Committed occupancy for Phase 1 has improved to 99.6% from the pre-commitment of 96.7% achieved in 1Q, whereas passing rent of S$13.99 psf pm was also significantly higher than the rate of S$11.31 for the rest of Suntec City Mall and S$12.59 projected for the whole project. Together with the continued strength and active lease management at its office segment, we are hopeful that any volatility in Suntec REIT’s financial performance is likely to be cushioned as it commences its Phase 3 (last phase) next year.

Maintain BUY
At current price, Suntec REIT trades at one of the lowest P/B in the S-REITs sector at 0.73x, while offering a compelling FY14F yield of 6.9%. We are revising our fair value from S$1.85 to S$1.80 due to higher risk-free rate. However, as valuations remain attractive and outlook is positive, we maintain BUY on Suntec REIT.



Source/Extract/Excerpts/来源/转贴/摘录: OCBC-Research,
Publish date: 27/08/13

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