Suntec Reit

Suntec Reit: 2Q13 results broadly inline. NPI declined 39% y/y to $28m, and revenue fell 34%, mainly due to the partial closure of Suntec City Mall (SCM) and Suntec Singapore for asset enhancement works. However, distributable income declined at a slower 4% y/y to $50.9m, and DPU dipped 7% to 2.25¢, aided by dividend support of $7.8m. Suntec’s operating performance remained healthy, as both the office and retail portfolio (unaffected by AEI works) retained close to 100% occupancy. This compares with the CBD Grade A occupancy of 94.3% in 2Q13. AEI at SCM continues to progress well. Phase 1 opened 21 Jun, and is now 99.6% pre-committed, with average passing rents of $13.10 psf pm, above mgt’s forecast of $12.60. Meanwhile, Phase 2 has achieved a pre-committed occupancy of 70.% (up from 53% in 1Q13) and is on track for estimated completion in 4Q13. Suntec’s gearing stands at 36.5% with average debt cost of 2.68% and a weighted average term to expiry of 2.28 years. In addition, Suntec secured a new $500m 5-year loan at an attractive margin of ~120bps, which will be used to refinance the $350m of debt maturing this year. At $1.53, Suntec trades at 0.74x P/B and offers 1H13 annualized distribution yield of 5.9%. Broker ratings as follows: Credit Suisse maintains Underperform with TP $1.65, premised on its negative-bias for the office sector. HSBC maintains at Underweight with PT $1.40, given the weak office outlook. Deutsche keeps at Hold with TP $1.53; thinks valuations are undemanding but notes earnings uncertainty amid the on-going AEI at SCM. Standard Chartered lowers TP by 5% to $1.64, but reiterates Outperform. Sees Suntec as the most resilient of the office Reits, notes Suntec stands out with the highest FY13e DPU yield of 6.3%. OSK-DMG maintains at Buy with TP $1.78, still views Suntec’s long term outlook positively. Maybank-KE reiterates Buy with TP $1.75; believes that in this growth-limited environment, Suntec will be one of the few REITs that will post modest DPU growth, boosted by positive rental reversions following the major overhaul at SCM.