Category: Suntec
Suntec – BT
Suntec Reit Q3 distribution per unit falls 14.3%
Distribution income falls 3.2% to $46.2m on 2.1% rise in gross revenue
SUNTEC Real Estate Investment Trust (Suntec Reit) has reported lower distribution income for the quarter ended September 30, 2010, compared to the year-ago period, and expects to face ongoing challenges in the office and retail sectors even amidst a recovery there.
Suntec Reit owns Suntec City Mall, certain office units in Suntec Towers One, Two and Three, and the whole of Suntec Towers Four and Five. It also owns Park Mall, Chijmes, a one-third stake in One Raffles Quay and a fifth of a joint venture that owns Suntec Singapore International Convention & Exhibition Centre.
Suntec Reit’s manager, ARA Trust Management (Suntec) Limited (ARA), reported yesterday that the Reit’s distribution income fell to $46.2 million, down 3.2 per cent from a year ago.
Its distribution per unit fell 14.3 per cent to 2.5 cents, from 2.9 cents the year before.
Its gross revenue was up 2.1 per cent to $63.2 million, while its net property income was up 7.6 per cent to $50.6 million.
ARA said Suntec Reit’s gross revenue was higher, thanks mainly to the higher office revenue achieved during the quarter. Its gross office revenue for the quarter was $30 million, 4.6 per cent up from the year before, mostly from the higher rental income from its Suntec City offices.
It also said that the committed occupancy of its Suntec City offices, as at September 30, had improved further to 98.1 per cent, from the quarter before. The committed occupancy of its Park Mall offices and those at One Raffles Quay stood at 97.5 per cent and 100 per cent, respectively. With this, Suntec Reit’s overall committed occupancy for its office portfolio strengthened to 98.5 per cent, as at September 30.
ARA chief, Yeo See Kiat, said, ‘I am encouraged by the further strengthening of the Singapore office market. In the nine months of 2010, we have renewed and signed more than 580,000 sq ft of office leases, leaving less than 1 per cent of our office portfolio expiring in FY 2010.’
Suntec Reit’s gross retail revenue was $33.2 million, or $28,000 lower than the year before – with Suntec City Mall contributing the bulk of the revenue. The committed occupancy of Suntec City Mall stood at 98.0 per cent, as at September 30, and the committed occupancy at Park Mall and Chijmes stood at 100 per cent and 90 per cent, respectively. That put the trust’s overall committed occupancy for its retail portfolio at 97.6 per cent, as at September 30.
Mr Yeo added, ‘On the capital management front, we have put in place a new $700 million term loan facility at a significantly lower interest margin, which will further improve Suntec Reit’s overall financing cost and strengthen our debt maturity profile.’
Looking ahead, ARA expects further strength for the property sector for the rest of the year, believing that the pickup in confidence seen in Singapore’s business climate will continue to buoy the office market.
‘However, the Singapore retail sector overall continues to experience rental pressure during the quarter, as the demand and supply situation in the industry is still finding its equilibrium. The manager expects ongoing challenges to the office and retail sectors notwithstanding signs of positive recovery in both sectors,’ Suntec Reit’s results statement said.
Suntec Reit shares closed 2 cents up at $1.56 yesterday.
SREITs – MS
Growth Challenging; Yields To Support
Investment Conclusion: Post the recent S-reits’ results, we maintain our In-Line industry view as we believe valuations look fair. Upside from inorganic growth appears challenging as capital values seem to have bottomed and sellers are pricing forward asking prices. Rental reversions in 2011 are likely to be flat/negative as rents from peak 2008 roll-over, but this is already reflected in the share prices, in our opinion. Average yields of 6.0% look attractive vs. the current savings rate of ~0.25% and current MAS S$ 10yr bond yields of 2.0%, especially if expectations for long-term yields stay low. In a range-bound market, we believe investors may be content to collect dividends that look well supported. Strong demand for S$ bond issuance in 2010 suggests to us that the demand for yield-like products could be increasing, a positive for S-reits.
Difficult to grow via acquisitions: How things have changed. At almost every results briefing we attended, inorganic growth was a major focus of attention; especially with low gearing and balance sheets repaired. While it is generally positive for an S-reit to make an acquisition, we do not support an acquisition-at-any-cost philosophy. Acquisitions in Singapore will be difficult given the lack of quality assets and sellers’ increasingly optimistic outlook that is translating into higher asking prices, while the success of overseas acquisitions remains to be seen. A dogged focus on inorganic growth is likely to disappoint, but we think the focus should be on the stability of underlying portfolios’ and organic growth prospects that are looking up as the rental cycle bottoms.
CCT our preferred pick: With acquisitions challenging and rates likely to stay low, we prefer S-reits with higher dividend yields, or with specific pipelines of assets to acquire. Our top pick remains CCT, followed by Suntec REIT. Our least preferred S-reit is CMT. We like CCT for trough yields of 5.2% (FY11e) that may surprise on the upside if the rental cycle turns faster than expected.
SREIT – UBS
SREIT valuation guide
Overview
This report summarises key statistics on valuations, performance and the capital structure of REITs listed on the SGX. There are now 22 REITs, with a total market cap of US$23.3bn. Year-to-date, SREITs have outperformed developers by 7.7%.
Key statistics
We estimate SREITs are trading at 6.2% 2010 yield (+424bp to 10Y government bonds). We expect SREIT distribution per unit (DPU) growth of 2.9% p.a. (2010- 14E), with hospitality and retail REITs leading growth at 6.0% and 4.0%, respectively. Our price target for the sector implies 10% upside from the current share price.
Corporate news: hospitality, MLT acquisition, Q2 reporting season
Singapore's tourism sector set a new record with inbound visitors crossing the one million mark in a single month. The July milestone marks eight consecutive months of record arrivals. Elsewhere in logistics, Mapletree Logistics Trust deepened its presence in Japan through a S$200m acquisition of three distribution centres in the Kanto region of Greater Tokyo. The acquisition raises its Japan contribution from 17.8% of gross revenue to 23.7%. Meanwhile, Savills Singapore expects serviced apartment rental rates for the high- and mid-tier segments to increase by 5-10% this year after sliding 22% in 2009. The Q2 reporting season has been strong so far, with around 80% of SREITs under coverage reporting earnings that are either in line with forecasts or higher than expected.
Buy retail REITs FCT, Starhill and Suntec, and CDL Hospitality REIT
We like CDL Hospitality Trusts (CDLH) as it is the most liquid proxy of the tourism recovery and Starhill Global REIT, Frasers Centrepoint Trust (FCT) and Suntec REIT as they are beneficiaries of improved retail consumer spending.
Suntec – DMG
Prime office rents could be rising at a faster pace
2Q10 results within expectations. Suntec reported 2Q10 DPU of 2.53¢ (-15.1% YoY; +0.6% QoQ), representing 26% of our FY10 DPU forecast of 9.57¢. Despite an improvement in office occupancy, net property income fell 2.8% on the back of negative rental reversion. Suntec will trade ex-2Q10 distribution on 30 July 2010. We raise our DDM-based TP to S$1.71 (from S$1.56) based on higher terminal growth assumption. Suntec trades at an attractive FY10 yield of 6.6%. Maintain BUY.
Suntec retail occupancy rose marginally. Suntec REIT’s portfolio office occupancy rose to 97.6% from 96.9% in 1Q10. Both Park Mall and One Raffles Quay remain 100% occupied while Suntec City office registered a 1.1ppt QoQ improvement in occupancy to 96.6%. Similarly, Suntec’s retail occupancy saw an occupancy improvement of 1.5ppt to 98.7%, due largely to the 1.9ppt rise in Suntec City mall’s occupancy, which now stands at 98.3%.
Small office floor plate tenants paying S$8/sqft. In the analyst briefing, management mentioned that lease renewals for tenants with small floor plate requirements recently paid S$8/sqft at Suntec City office, while larger ones went at the top end of the S$7-8/sqft range. This is in contrast with CBRE’s 2Q10 reported prime rents of S$6.90/sqft. While management did not disclose the number of such deals that were signed, we are upbeat that this signals a strong inflection of office rents within the sector.
Raise TP to S$1.71 on higher terminal growth assumptions. Judging from the dynamics of the current economic growth momentum, it could take anywhere between 12-18 months for excess office supply to be absorbed, thereby resulting in a tight market by early 2012. Rental growth prospects are likely to be robust once excess capacity is absorbed. Our new TP of S$1.71 assumes a terminal growth assumption of 4% (3.3% previously). Stock trades at 5.6% yield at our TP, a reasonable peg in our view.
Suntec – Phillip
2QFY10 Results
• 2QFY10 of $62.9 million, net property income of $47.4 million, distributable income of $45.9 million
• 2QFY10 DPU of 2.528 cents
• Stabilization of occupancy and rents
• Maintain Hold, fair value of $1.34
Suntec REIT recorded 2Q10 revenue of $62.9 million (-3.3% y-y, -0.1% q-q), net property income of $47.4 million (-2.8% y-y, -0.8% q-q) and distributable income of $45.9 million (-3.7% y-y, +1.2% q-q). 2Q10 DPU was 2.528 cents (-15.1% y-y, +0.6% q-q). 2Q10 results were pretty much stable from a quarter ago. In fact there were slight improvements in occupancy rates for both the office and retail portfolio. Management shared that it was the practice to negotiate on renewal of leases 6-9 months ahead of expiry and they are now working on FY2011 leases. Park Mall and Chijmes continue to achieve 100% occupancy rates. Management also dispelled the risk of losing Carrefour as an anchor tenant citing that there will be upside potential in rent since the current passing rent is quite low. Overall, the office portfolio has 97.6% occupancy and the retail portfolio has 98.7% occupancy. Reversionary rent for the office portfolio was $7.13, which was down 2.8% from the last quarter, however management explained that it was due to tenants taking larger spaces which would command lower rates.
Suntec REIT has total debt of $1.752 billion. Gearing is 33.6%.
We think management has done a good job in maintaining occupancy for the retail portfolio and improving the occupancy for the office portfolio. Note that office portfolio occupancy improved from 94.8% in 2Q09. Although reversionary rents probably softened in the wake of this, nonetheless leases were secured and mitigated the risk of tenants migration. The opening of the circle line and adjoining stations are expected to increase the footfall to Suntec City and this should boost the attractiveness of the area. The last tranche of the deferred units (34.5 million) will be issued at the end of the year. We are holding our forecasts and projections and maintain our Hold recommendation with fair value of $1.34.