STI : 3,100.24
Price Target : 12-Month S$ 1.78 (Prev S$ 1.80)
A year of reckoning
•4Q13 DPU increased by 10% y-o-y to 2.6Scts
•Phase 2 of Suntec Mall to open by 2Q14; earnings to continue to improve sequentially
•Maintain BUY, TP revised to S$1.78
4Q13 revenues and NPI up due to contribution from Phase 1 at Suntec Mall. 4Q13 revenue and NPI grew 30% and 63% to S$71.6m and S$49.8m, respectively, led by contribution from completed Phase 1 refurbishment of Suntec Mall. There was also higher revenue from Suntec Office and stable performance at other properties (Park Mall, stakes in ORQ and MBFC). Distributable income grew 11% to S$58m, comprising S$54m distribution income from operations and additional S$4m of capital distributions, translating into 2.56Scts DPU (+10% y-o-y).
Phase 2 to open by end-1Q14; final refurbishments at Suntec City Mall. The newly opened Suntec Mall (Phase 1) continues to ramp up operations while Phase 2 has achieved 97% pre-commitment rate last quarter (up from c.84%) and will open in 1Q14, supporting the Manager’s ability to execute its refurbishment strategy. The mall will see final refurbishment works in February. Phase 3 which is slated for completion in 4Q14 will feature international and high-end fashion retailers. And because the tenants will be mainly specialty shops, we estimate rents for this part of the mall will be highest among the three phases.
Office portfolio performed strongly; Australia acquisition to contribute positively. Suntec REIT’s office portfolio continues to enjoy strong occupancy of 99.8%. In the quarter, it secured average rent of S$8.65psf for Suntec Office. Looking ahead, the manager has forward renewed 268k sqft of office space in 2014, with only 12.5% (vs 17.6% previously) of its office NLA to be renewed. In addition, contribution from recently acquired 177-100 Pacific Highway, Sydney, will lead to steady earnings growth in the coming years.
Maintain BUY, TP revised to S$1.78. We continue to like Suntec REIT for anticipated strong growth in distributions after the completion of its AEI by end 2014. We nudged down TP to S$1.78 after adjusting for slightly higher interest costs in our forecasts.
Publish date: 24/01/14