Suntec – CIMB
Holding steady
• Maintain Outperform; target price raised to S$1.43 (from S$1.37). 3Q09 results were in line with Street and our expectations. We remain positive that the opening of the Marina Bay Integrated Resort and new train stations in 2010 will provide catalysts for Suntec’s retail sector.
• In line. 3Q09 DPU of 2.92cts was in line with consensus and our expectations as declining interest base rates mitigated a weaker topline caused by lower occupancy in the office segment. Additionally, lower interest expenses for One Raffles Quay (also due to declining interest base rates) resulted in higher dividend contributions to Suntec REIT’s distributable profit. YTD distributable income of S$141.8m (+15% yoy) and DPU of 8.8cts (+8% yoy) form 81% of our full-year forecasts. We expect 4Q09 topline to dip as this quarter’s lower passing rents kick in and higher interest rates are applied to new loan refinancing that would be drawn down. 3Q09 net property income of S$47m (+3% yoy) was boosted by tighter control of propertyrelated expenses.
• Occupancy up qoq. Office occupancy was 96.4%, up 1.6% pts from 94.8% as at Jun 09. This was mainly due to higher occupancy at Suntec Offices of 94.8% (from 92.5% in Jun 09) as returned space in 2Q09 was gradually filled up. Leases secured for the quarter averaged S$7.30psf (-11% qoq). Including One Raffles Quay, there was only 0.8% of total net lettable area left for renewal in FY09. Retail occupancy averaged 99.1% (+0.7% qoq), while retail rents secured for Suntec City (the main retail component) remained flat qoq at S$10.96psf.
• Opening of Marina Bay IR and train stations could boost retail. We believe the opening of the Marina Bay Integrated Resort by 1Q10 and two new train stations (Esplanade and Promenade Circle Line stations) by 2H10 are wild cards that could boost Suntec’s retail segment. We make no changes to our DPU estimates, but roll our target price one year forward. Our DDM-derived target price rises accordingly to S$1.43 from S$1.37 (discount rate of 8.8%). Maintain Outperform on expectations of retail catalysts.