STI : 3,167.43
Price Target : 12-Month S$1.80
Earnings turning around
• Remaking of Suntec City enters its final phase
• Office leasing continues to improve
• Australia acquisition to be accretive; BUY, TP S$1.80
Remaking of Suntec City Mall enters the final phase. 2014 will mark the start of Suntec City’s planned remaking of its Mall. Previous phases are seeing positive results : (i) Operations of tenants at phase 1 of the mall continue to improve, with full occupancy rates; (ii) Pre-commitment rates for phase 2 of Suntec Mall is on the rise, with c.83.5% of the space already taken up in 3Q13. While still early days (the manager will be starting phase 3 of the AEI in 1Q14), when completed by end of 2014, Suntec City Mall will attract higher footfalls, given the upcoming completion of South Beach and other transport conveniences.
Office leasing environment strengthening. Suntec REIT continues to enjoy strong occupancy of 99.8% for its office portfolio. During 4Q13, it secured an average rent of S$8.55psf for Suntec Office. Leasing activities in FY14 (17.6% of NLA or 425k sqft) is expected to remain stable, with underlying expiring rents mostly below current signing rents.
Maintain BUY, TP S$1.80. While Suntec REIT’s recent foray into Australia will result in higher leverage, it introduces currency risks to earnings, however this is compensated by its higher initial yield of c.6.8%. At 0.8x P/Bk NAV, Suntec REIT is the cheapest in the sector and we believe most of the negatives have been priced in. BUY, TP S$1.82.
Publish date: 02/01/14