Suntec REIT

Suntec REIT: 3Q results slightly ahead of consensus, with Rev at $63.2m, up 2.1% YoY, but Distribution income at $46.23m was down 3.2%YoY and up 0.6%QoQ, partly due to 38% increase in financing costs. 3Q DPU amounted to 2.502c, bringing 9mFY10 DPU to 7.543c (annualized DPU of 10.05c vs consensus of 9.7c), representing a 6.4% yield.....

Committed occupancy of grp’s office portfolio remained strong, with overall committed occupancy for office portfolio at 98.5%, while grp’s retail portfolio stood at 97.6%. Grp remains upbeat on SG office sector, expecting high occupancy rate and increased rental rates. Retail sector continues to experience rental pressure, as demand and supply situation in industry still finding its equilibrium…..

Focus will however be on grp’s plans to acquire Cheung Khong’s 1/3 stake in MBFC for $1.4958b or $2,568 psf. Grp is forking out slightly less than what valuers thought MBFC stake was worth. CBRE valued it at $1.496b and Knight Frank at $1.497b….

Citi maintains Buy call and raises TP to $1.69, and is upbeat on the MBFC acquisition. With limited info, grp assumes acquisition to contribute a pre-tax rental yield of 4.5%, which will be funded by 2/3 debt and 1/3 equity, increasing gearing ratio to 40% from 32.9%. Expects acquisition to increase Suntec REIT’s office portfolio of NLA to 2.4m sqft frm 1.9m sqft….

Broker raises FY11-12 DPU by 6-9% to reflect higher than expected office rental rates in FY10, lower than expected space due for renewal in FY11 and lower recent interest cost following recent financing…..

We note that grp’s recent $700m term loan facility should improve REIT’s overall financing cost and strengthen its debt maturity profile, with majority of grp’s debt maturity only due by 2012. At current prices, grp trades at 0.85x P/B and yield of 6.4% vs CCT of 1.36x P/B and yield of 5.17% and K-REIT of 0.9x P/b and yield of 5.19%.