Suntec – UOBKH
3QFY08: Record distribution with boost from office portfolio
Suntec REIT reported gross revenue of S$59.2m in 3QFY08, an increase of 26.9% yoy. It benefited from positive rental reversion from office space at Suntec City and Park Mall. Revenue contribution from office space increased 41% yoy to S$25.2m. Suntec Office Towers achieved committed occupancy of 99.5% in Jun 08. New leases were signed at between S$12 to S$15psf pm compared to S$11.50 to S$13.50psf pm last quarter. One Raffles Quay (ORQ) provided earnings contribution of S$11.9m. Revenue from retail space increased 18.2% yoy to S$34m. 79,439sf of retail space was renewed at Suntec City Mall at 14.8% above preceding rental rates.
Distributable income gained 40.2% yoy to S$42m. Suntec REIT announced record DPU of 2.793 cents for 3QFY08, an increase of 24.9% yoy.
Benefitting from improved connectivity to Suntec City. Accessibility to Suntec City will improve as it will be served by the Esplanade and Promenade MRT stations when the new Circle line is ready in 2010. Suntec REIT will also benefit from increased MICE (meetings, incentive travel, conventions and exhibitions) activities due to increased shopper traffic at Suntec City Mall, which is linked to Suntec Singapore International Convention and Exhibition Centre.
No refinancing risk. Suntec REIT has refinanced bridging loan of S$400m due in Oct 08 with a 3-year unsecured loan facility from a panel of banks. According to management, the interest rate for the new loan facility is slightly lower than current average cost of borrowings of 3.36%. Having completed the refinancing for outstanding bridging loan related to the acquisition of ORQ, Suntec REIT does not have any major requirement for refinancing in FY08 and FY09.
Reiterate BUY. Suntec REIT has a balanced portfolio of quality retail and office properties. Suntec REIT provides FY09 distribution yield of 7.4%, an attractive spread of 4% over the 10-year Singapore government bond yield at 3.4%. We have increased our target price from S$1.90 to S$2.10 based on dividend discount model (required rate of return: 8.5%, terminal growth: 2.8%) as we roll over to FY09 financial performance.