Category: Suntec
Suntec – BT
Suntec Reit Q2 DPU falls 15% to 2.53 cents
SUNTEC Reit’s second-quarter distribution income to June 30 slid 3.7 per cent to $45.9 million, from $47.7 million a year back, while distribution per unit (DPU) fell 15.1 per cent to 2.528 cents.
Gross revenue for the quarter slipped 3.3 per cent to $62.4 million, from $64.5 million a year earlier, due to lower office and retail revenue.
The Q2 results brought the Reit’s first-half distribution income to $91.3 million, down 2.9 per cent year on year, and its gross revenue to $124.8 million, down 3.5 per cent from $129.4 million.
First-half DPU was 5.041 cents, a 14.5 per cent drop year on year.
Gross office revenue in Q2 was $29.6 million, 2.3 per cent lower year on year, mainly due to lower rental income from Suntec City offices, which contributed $27.4 million.
The committed occupancy rate for Suntec City office improved to 96.6 per cent. Park Mall offices and One Raffles Quay were fully occupied at June 30, strengthening the Reit’s overall committed occupancy for the office portfolio to 97.6 per cent.
For its retail portfolio, gross revenue fell 4.1 per cent year on year to $32.8 million. Suntec City Mall contributed $26.6 million, while Park Mall and Chijmes contributed $6.2 million.
The overall occupancy rate for the retail portfolio was 98.7 per cent at June 30.
Property operating expenses eased 4.8 per cent in Q2 to $15 million, due to lower property tax and other expenses.
Net financing cost for the quarter was $16.3 million, a decline of $2.4 million or 12.9 per cent year on year. This was mainly due to a net loss of $3.8 million arising largely from the re-measurement of interest-rate swap transactions and convertible bonds.
The Reit’s overall financing cost in Q2 averaged 3.68 per cent and its gearing ratio was 33.6 per cent at June 30.
Suntec Reit’s counter closed one cent up at $1.44 yesterday.
Shopping Malls – BT
Rents at suburban malls catching up with Orchard Rd
Upper levels in such malls already drawing higher rents than equivalent space in Orchard and Scotts area, says DTZ
Rents at suburban malls in Singapore are fast catching up with those for prime Orchard Road retail space as neighbourhood malls draw increasing shopper numbers and more interest from tenants.
The difference between prime Orchard Road rents and suburban rents narrowed to just 9 per cent in Q2 2010 – from as much as 24 per cent at the start of 2009 and 21 per cent in Q1 2005 – according to CB Richard Ellis (CBRE).
In fact, upper-storey space at these suburban malls is already more expensive than upper-storey space in the Orchard Road and Scotts Road area, according to data from DTZ.
The rental gap tightened as Orchard Road rents fell for the seventh consecutive quarter while suburban rents continued to edge up in the second quarter of 2010, CBRE’s data shows.
Prime Orchard Road rents fell to $31.10 per square foot per month (psf pm), reflecting a 3.4 per cent decrease from $32.20 psf pm in Q1 2010.
Suburban malls, on the other hand, saw a 1.4 per cent quarter-on-quarter increase in prime rentals to $28.50 psf pm.
And when it comes to retail space on the upper floors, suburban malls are in fact fetching more than their Orchard Road and Scotts Road counterparts.
According to DTZ, upper-storey rents at suburban malls inched up 0.4 per cent quarter-on-quarter to $22.90 psf pm in Q2 2010, while upper-storey rents in the Orchard Road/Scotts Road area stayed flat at $20.50 psf pm.
Analysts said that rents in the Orchard Road area are depressed after a large amount of new supply – from malls such as Ion Orchard, 313@somerset and Orchard Central – came onstream over the past year.
‘Competition in the Orchard Road and Scotts Road and other city areas has intensified and the increased range of retail choices has rendered consumers to be more selective in their purchases,’ said Anna Lee, DTZ’s associate director for retail.
‘Retailers, particularly in the newer malls, are adjusting to the vagaries of consumer preferences and resulting in early termination of leases in some cases,’ she added.
In contrast, rents in the suburban areas continued to edge up in the second quarter of 2010. Suburban malls, with their built-in catchment of shoppers and mass market offerings, largely performed better than malls in the city during the financial crisis.
These malls, which draw more and more shoppers every year, are now able to command higher rents from tenants.
‘Generally, 2009 shopper traffic at our suburban malls is higher than that in 2008,’ said a spokesman for CapitaMall Trust (CMT). CMT has eight suburban malls in its portfolio.
Frasers Centrepoint Trust (FCT), which owns four suburban malls, also said that footfall across its portfolio rose 6 per cent from the 2008 financial year (October 2007 to September 2008) to the 2009 financial year (October 2008 to September 2009). The figures exclude Anchorpoint, where traffic counters were removed for asset enhancement works.
The increased visitor numbers have translated into higher rents for both retail trusts.
FCT said that in the first six months of its 2010 financial year (October 2009 to March 2010), its portfolio achieved average rental reversions of 4.5 per cent. And for the suburban malls in CMT’s portfolio, the rate of average rental growth per year ranged from 1.1 per cent to 2.3 per cent in Q1 2010.
Developers are extremely bullish on the potential of suburban retail space here.
Australian developer Lend Lease, which paid $749 million for a mixed-use land parcel in the Jurong Lake district, intends to build a suburban shopping mall on most of the site.
Lend Lease, which owns the 313@somerset and Parkway Parade shopping malls here, is required to set aside a mandatory 30 per cent of the gross floor area for office use. But the remaining 70 per cent will be used solely for retail space, said Ooi Eng Peng, executive officer for retail and investment management in Asia for Lend Lease.
‘The mall will be the Parkway Parade of the west,’ Mr Ooi said. Suburban malls offer good prospects for developers who can come up with the right tenant and product mix for the surrounding catchment population, he added.
Looking ahead, the gap between prime Orchard Road rents and prime suburban rents will narrow even more over the rest of this year as Orchard Road rents dip further.
‘We expect prime Orchard Road rents to dip 5 per cent to 10 per cent in 2010 due to the settling of business and trading patterns,’ said Letty Lee, CBRE’s director for retail services. ‘But prime suburban rents are likely to see a 3-5 per cent upside in the same period, underpinned by catchment demand.’
But it is not all doom and gloom for malls on Singapore’s best-known street; analysts expect that over the next two to three years, rents in the Orchard Road will rebound.
Suntec – Phillip
1QFY10 Results
• 1QFY10 of $62.5 million, net property income of $47.8 million, distributable income of $45.4 million
• 1QFY10 DPU of 2.513 cents
• Rebound in office reversionary rent
• Maintain hold recommendation with fair value of $1.34
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Results within expectations
Suntec REIT recorded 1Q10 revenue of $62.5 million (-3.8% y-y, +1.1% q-q), net property income of $47.8 million (-2.7% y-y, +1.3% q-q) and distributable income of $45.4 million (-2.1% y-y, -5.1% q-q). 1Q10 DPU was 2.513 cents (-13.9% y-y, -13.0% q-q). The decrease in DPU was mainly attributed to the larger share base in 1Q10 from the issuance of the deferred units. Although there was a general drop from a year ago, however the revenue trends showed that things have stabilized over the last 3 quarters. The office portfolio is showing signs of improvement. Office occupancy has inched up slightly to 96.9% and reversionary rent has also increased from $7.11 achieved in 4Q09 to $7.34 in 1Q10. For the retail portfolio, revenue contribution remained stable, but occupancy fell slightly to 97.2%. On the overall, the office portfolio contributed 47% to total revenue while the retail portfolio accounted for the rest at 53%.
Suntec REIT has total debt of $1.752 billion. Gearing is 33.4%. $532.5 million is due in 2011.
We are raising our revenue estimates as Suntec REIT portfolio is showing better resiliency than we had previously thought. Both Park Mall and Chijmes had achieved 100% occupancy for the past 3 quarters running. Previously we were concerned on the performance of Suntec City Office Tower, but the latest 1Q10 results showed that occupancy has improved and overall revenue trend shows stabilization. Our attention is now shifted to Suntec City Mall, which has registered slight drop in occupancy. Our estimates revisions reflect 1-3% increase in revenue and 2-7% increase in DPU for forecast years 2010E-2012E. We raised our fair value from $1.21 to $1.34 and maintain our Hold recommendation.
Suntec – DMG
Value not fully appreciated; BUY
1Q10 earnings in-line. Suntec REIT reported 1Q10 results DPU of 2.51¢ (-13.9% YoY; -12.9% QoQ), representing 25% of our FY10 DPU forecast of 10.1¢. 1Q10 annualised DPU was inline with ours but 12% above street’s forecast. Net property income fell 2.7% YoY on the back of negative rental reversion. We adjust our FY10 DPU forecast to 9.6¢ as we assume slightly higher negative rental reversions for the next few quarters. Suntec will trade ex-1Q10 distribution on 3 May. Maintain BUY, DDM-based TP of S$1.56.
Suntec retail occupancy slipped marginally. Suntec REIT’s portfolio office occupancy remained stable at 96.9%. Both Park Mall and One Raffles Quay remain 100% occupied while Suntec City office registered a 0.2ppt QoQ improvement in occupancy to 95.5%. In contrast, Suntec’s retail occupancy saw a slight occupancy decline of 0.9ppt to 97.2%, due largely to the 1.2ppt decrease in Suntec City mall’s occupancy, which now stands at 96.4%. Management indicated that this is due to temporary frictional vacancy.
Office rents will bottom by end-2010 and may stay flat till 2012. Whilst there is every sign that office rents have stabilised, it may be premature to make a call on an early return to rental growth. We expect prime office rents to fall to the S$6/sqft level by end-2010 and remain at that level till 2012. We believe the huge supply of new completions (at only 38% pre-commitment level) as well as the substantial amount of secondary supply from tenants relocating to new mega-schemes may place a brake on rental recovery.
Tenant retention remains key focus in 2010; BUY with TP of S$1.56. The focus on tenant retention remains paramount for Suntec REIT, in view that the bulk of leasing activity currently involves replacement demand, i.e. tenants moving from older office blocks to newer ones. We believe Suntec REIT will likely register negative rental reversion in 2010 in view that expiring leases are higher than current spot rates. Nevertheless, we believe the Singapore office sector is at the point of ‘L’ inflection and long-term rental growth prospects are likely to be robust once excess capacity is absorbed. At our TP, stock still offers an attractive yield of 6.9%, above its heyday yields of 4.6%.
Suntec – CIMB
Starting out right
• DPU in line; maintain Outperform. 1Q10 results met our expectations but were broadly above Street estimates. DPU of 2.51cts forms 26% of our full-year estimate and 28% of the Street’s. Although DPU fell yoy due to poorer occupancy rates and rents, quarterly performance held up well, with offices surprising with moderate occupancy and rental improvements where we had anticipated a fall. With limited office leases due for renewal in the rest of FY10, as well as greater bargaining power in retail rental negotiations with the opening of the Esplanade Circle Line and Marina Bay integrated resort in April, we believe Suntec REIT will be on track to meet our full-year expectations. Our estimates and DDM-based target price of S$1.59 (discount rate 8.1%) are intact. Suntec REIT still trades below book value (0.7x vs. sector average of 1.0x)) while it offers prospective yields of 7%, in line with the sector average. We see stock catalysts from upside for retail rents.
• Weaker yoy performance from fall in occupancy. Distributable income of S$45.4m fell 2.1% yoy mainly due to lower occupancy for the office and retail segments. DPU fell by a steeper 13.9% yoy from an increase in units as deferred payments in units to the original vendors of Suntec Development are paid out every June and December.
• Better office performance over 4Q09 heartening. Qoq, occupancy at Suntec City surprised us, with office occupancy improving to 95.5% (+0.2% pt) while retail occupancy dipped to 96.4% (-1.2% pts), where we had anticipated the opposite. Management explained the fall in retail occupancy as temporary frictional vacancy. Portfolio office leases secured in the quarter improved moderately by 3% to S$7.34 psf while portfolio retail rents improved marginally by 1%.
• Limited office leases due for renewal in FY10. For the rest of FY10, there is less than 100,000sf of office space left for renewal due to successful forward renewals of half of the space due for expiry. There is more retail space for renewal (185,269sf) in the same period. We believe increased traffic in the Marina Bay area with the opening of the Esplanade Circle Line and Marina Bay integrated resort will enhance Suntec management’s bargaining power in retail lease negotiations.