Suntec – Phillip
Full Year 2009 Results
• Full year revenue of $253.1 million, net property income of $192.2 million, distributable income of $189.6 million.
• 4Q09 DPU of 2.887 cents, bringing full year DPU to 11.703 cents.
• Total asset value of $5.2 billion.
• Maintain hold recommendation with fair value of $1.21
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Results within expectations
Suntec REIT recorded full year revenue of $253.1 million (+5.4% y-y), net property income of $192.2 million (+5.5% y-y) and distributable income of $189.6 million (+13.1% y-y). Full year DPU was 11.703 cents (+6.2% y-y). Suntec REIT full year results came in better than our projections (revenue +4.1%, net property income +2.3%, distributable income +7.3%, DPU +10.8%). The increase in revenue is backed mainly from higher office rental achieved in 2009. For FY2009, office portfolio accounted for 47% of gross revenue while the retail portfolio accounted for 53% of gross revenue.
We continue to see weakness in asset valuation. In the property valuations as at 31 Dec 2009, Suntec City recorded 3.8% decrease in value, while Park Mall and Chijmes held steady valuations. One Raffles Quay also recorded 11.7% devaluation. Including Suntec convention centre, which was acquired in September 2009, Suntec REIT has total asset value of $5.2 billion.
Quarterly results review
The office portfolio continues to see weakness in reversionary rent. New leases were contracted in 4Q09 at an average rate of $7.11 psf per month, which was the lowest in the 2-year periods from 1Q08 to 4Q09. However we could observe that the rate of decline has slowed. We believed the drop in rental could also be attributed to management trying to strike a balance in maintaining the office occupancy rate. Office occupancy has increased from 94.8% in 2Q09 to 96.8% in 4Q09. On the other hand, retail occupancy has dropped slightly from 99.1% in 3Q09 to 98.1% in 4Q09. Suntec REIT has managed to achieve relatively high portfolio occupancy amidst the recession and we think management has done a good job in maintaining this.
Capital management
Suntec REIT has total debt of $1,752 million and gearing (debt/assets) of 33.3%. It has no near term refinancing concern. The next loan maturity is in 2011 with loan amount of $632.5 million.
Forecasts
We retain our gross revenue forecasts and made slight changes to our DPU forecast. We forecast FY2010E revenue to decrease 5% before registering growth in FY2011E. Our DPU forecast for FY2010E is 8.49 cents, translating to a yield of 6.4%. Suntec REIT will be issuing the remaining of the 69 million deferred units this year. We believe average office rent may be bottoming for Suntec REIT, however we think spot office rent may be sticky for a while and do not expect a quick pick-up. We utilized a lower WACC assumption in our DCF valuation and raised our fair value from $1.14 to $1.21. We maintain our hold recommendation.