Wednesday, October 30, 2013

Suntec REIT: Poised for strong harvest (OCBC)

Suntec REIT:
Fair value S$1.85
add: 12m dividend forecast S$0.091
versus: Current price S$1.73

Poised for strong harvest
• 3Q13 DPU up 1.8% QoQ
• Assets high on demand
• ROI for Suntec City AEI on track

Suntec REIT posted 3Q13 DPU of 2.289 S cents, up 1.8% QoQ (-2.6% YoY). This brings the 9M13 DPU to 6.766 S cents (-5.6%), meeting 73.4% of both consensus and our FY13F DPU.
As at 30 Sep, both the office and retail portfolio occupancy rates were maintained at high levels of 99.8% and 98.3%, respectively. We understand that ~160,000 sqft of leases was signed in 3Q, leaving only a balance of 1.7% of office NLA due for renewal in 2013. As such, its portfolio performance is expected to stay relatively steady, despite potential weakness in 4Q13/1Q14 as Suntec REIT prepares for Phase 3 AEI. Management also updated that pre-commitment at Phase 2 retail space has improved from 70.1% in 2Q to 83.7%. While there are a few anchor tenants (which may command lower rents), Suntec REIT reiterated that ROI of 10.1% remains on track. In 4Q, we can reasonably expect revaluation gains of the portfolio assets, which may improve Suntec REIT’s gearing and P/B ratios (currently at 37.2% and 0.84x respectively). Maintain BUY with higher fair value of S$1.85 (S$1.80 previously) as we roll our valuation to FY14.

Firm recovery as expected
Suntec REIT posted an encouraging set of 3Q13 results last evening. As we have previously expected, NPI saw a strong recovery of 44.0% QoQ (+4.7% YoY) to S$40.3m following the opening of Phase 1 retail space and Suntec Singapore post enhancement works. Distributable income was also lifted up by 10.0% QoQ (-10.4% YoY) to S$47.3m. As a result, a smaller capital distribution of S$4.5m (S$7.8m in 2Q) from CHIJMES sales proceeds was needed to mitigate the dip in distribution payout. This led to a DPU of 2.289 S cents, up 1.8% QoQ (-2.6% YoY). Consequently, 9M13 DPU amounted to 6.766 S cents (-5.6%), meeting 73.4% of both consensus and our FY13F DPU.

Positive portfolio performance
The retail segment contributed 34% of gross revenue, marking a rise from 2Q level of 28%. However, on a YoY basis, retail revenue was still down 30.1% due to Phase 2 asset enhancement initiatives (AEI) at Suntec City Mall. Suntec Singapore was the top performer in 3Q, raking up 125.3% growth to S$16.5m. In addition, the office segment continued to perform, delivering a growth of 4.1% YoY on the back of positive rental reversions. We understand that ~160,000 sqft of leases was signed in 3Q, leaving only a balance of 1.7% of office NLA due for renewal in 2013. At Suntec City office, average signing rent also improved from S$8.42 psf pm to S$8.55. As at 30 Sep, both the office and retail portfolio occupancy rates were maintained at high levels of 99.8% and 98.3%, respectively. As such, its portfolio performance is expected to stay relatively steady, despite potential weakness in 4Q13/1Q14 as Suntec REIT prepares for Phase 3 AEI.

Maintain BUY
Management also updated that pre-commitment at Phase 2 retail space has improved from 70.1% in 2Q to 83.7%. While there are a few anchor tenants (which may command lower rents), Suntec REIT reiterated that ROI of 10.1% remains on track. In 4Q, we can reasonably expect revaluation gains of the portfolio assets, which may improve Suntec REIT’s gearing and P/B ratios (currently at 37.2% and 0.84x respectively). Maintain BUY with higher fair value of S$1.85 (S$1.80 previously) as we roll our valuation to FY14.


Source/Extract/Excerpts/来源/转贴/摘录: OCBC-Research,
Publish date: 25/10/13

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