Suntec REIT

Suntec REIT:

Suntec's 2Q15 distributable income of $62.9m (inclusive of $6m capital distribution) and DPU of 2.5¢ (+10.3% y/y, +12.1% q/q) came in broadly in line with expectations.

Gross revenue of $81.4m (+19.6%) and NPI of $56.9m (+23.5%) were boosted by the completion of Phase 2 AEI works at Suntec City, as well as stronger performance of Suntec Singapore, particularly the convention centre, which enjoyed a 37.7% and 126% q/q jump in revenue and NPI respectively.

Overall occupancy of its office portfolio ticked down to 99% (-0.6ppt) at both Suntec (-1.4 ppt) and Park Mall (-0.4ppt) but were well above Grade A office occupancy of 95.2%. New leases secured averaged $9.14 psf (-1.1% q/q) or 3.2% lower than the CBD average of $9.44.

However, this is set against an incoming supply of 4m sf of office space in 2016/17. With 49.7% of its office leases expiring by 2017, there is no telling whether Suntec will be able to sustain its rental and occupancy rates.

Suntec’s retail portfolio did not fare much better, although overall occupancy climbed to 95.1% (+1.6ppt) largely due to completed AEIs at Suntec City mall, while passing rents were relatively flat at $12.12 psf but below its guided target of $12.59. About 14% of Suntec Phase 3 remained unoccupied, and 31% of its retail space will be up for renewal by end 2016.

Recent findings by AdNear showed that Suntec City received the lowest shopper footfall out of five other locations (including Orchard Road and nearby Marina Square) during the Great Singapore Sale. With tourist arrivals and retail sales figures remaining weak, there are concerns that Suntec REIT DPU may come under increasing downside risk. Management indicated that it may use part of the proceeds from the divestment of Park Mall to stabilise it DPU.

Suntec’s debt profile remained little changed with aggregate leverage of 36.2% (+0.5ppt), while cost of debt climbed 0.17ppt to 2.7%. Average debt-to-maturity stood at 3.08 years.

Suntec REIT currently trades at an annualised distribution yield of 5.8% and P/B of 0.82x.

Latest broker ratings:
HSBC maintains Hold with TP of $1.85
CIMB maintains Hold, cuts TP to $1.79 from $1.86
Daiwa maintains Hold with TP of $1.76
Nomura maintains Reduce with TP of $1.74
Deutsche maintains Sell with TP of 1.65
Credit Suisse maintains Underperform with TP of $1.54
OCBC maintains Sell with TP of $1.50