Suntec REIT

Suntec REIT recorded a 3Q15 DPU of 2.52¢ (+8.3% y/y) on distributable income of $63.6m (+9.2%), which came in line with expectation. 9M15 DPU was lifted to 7.25¢ or 74% of full year consensus estimate.

Gross revenue of $86.1m (+20.4%) soared in tandem with NPI of $8.5m (+19.9%), bolstered by completion of Phase 3 AEI works at Suntec City and higher contribution from Suntec Singapore.

Occupancy for office portfolio trickled down 0.1ppt q/q to 98.9% , mainly dragged by MBFC properties (-2.3ppt), but remains well above Singapore’s average CBD Grade A office occupancy of 93.9%.

Average office rents for leases secured were higher than previous quarter at $9.21psf (2Q15: $9.14psf), but lower than CBD average of $9.61psf. Suntec is still faced with a herculean task of sustaining its rental rates, as it still has 21.4% of leases expiring in 2016, when a new wave of office supply is expected to come on stream.

On the other hand, retail portfolio’s occupancy inched up 1.4ppt to 96.5%, supported by completion of AEIs at Suntec City Mall (+1.7ppt). However, passing rents also continued its downward spiral to $12.03psf from $12.12psf in the previous quarter, and the retail portfolio has 27.7% of leases due for renewal in 2016.

Both aggregate leverage and average cost of debt crept up to 35.8 % (+0.5ppt) and 2.74% (+0.04ppt) respectively. Average debt tenor has shortened to 2.82 years (2Q15: 3.08 years).

Going forward, management expects the solid occupancy rate from its office portfolio can help the REIT stay resilient in FY15. Nevertheless, headwinds of oversupply in offices and persistent manpower issues, as well as weak retailer sentiment will put much pressure on the REIT in 2016.

Maybank-KE echoes the view of the management and added that Suntec’s forward yield of 5.9% is less compelling as compared to its peers, such as Keppel REIT (FY16: 6.5%) and CapitaLand Commercial Trust (FY16: 6.2%).

As such, the house maintain a Sell rating and TP of $1.33 on the counter.

Latest broker ratings:
UOB Kay Hian maintains Buy with TP of $1.81
Credit Suisse maintains Underperform with TP of $1.54
OCBC upgrades to Hold with TP of $1.50
Daiwa maintains Hold with TP of $1.48
Deutsche maintains Sell with TP of $1.45
Maybank-KE maintains Sell with TP of $1.33