Category: Suntec
Suntec – SGX
Suntec REIT achieved Distribution Income of S$45.37m for 1Q FY10 Distribution per unit of 2.513 cents
Singapore, 27 April 2010 – ARA Trust Management (Suntec) Limited, the Manager of Suntec Real Estate Investment Trust (“Suntec REIT”), is pleased to announce a distribution income of S$45.37 million for the period 1 January to 31 March 2010 (“1Q FY10”), which is a marginal dip of 2.1% compared to the quarter ended 31 March 2009 (“1Q FY09”). The distribution per unit for the quarter amounted to 2.513 Singapore cents at an annualised yield of 7.6%
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SREITs – OCBC
1Q10 results preview
In 1Q10, YoY DPU improvements for most... The majority of the S-REIT universe will report 1Q CY10 results over the next two weeks, with CapitaCommercial Trust (CCT) kicking off the season on 16 Apr. Within our coverage universe, we expect Ascott Residence Trust (ART) to show a YoY improvement in DPU on the back of stronger occupancy rates and RevPAU1 . Based on our estimates, Mapletree Logistics Trust and Frasers Centrepoint Trust (FCT) could also see a YoY pick-up in DPU for the quarter due to a boost from recent acquisitions. FCT’s earnings in the preceding year were also impacted by asset works. CapitaMall Trust may also post a YoY increase in DPU as the REIT retained part of its distributable income in 1Q09. We expect Ascendas REIT to report stable operating performance, with this quarter’s DPU up 2.8% YoY.
…but not all. On the other hand, we expect Suntec REIT to report a YoY decline in DPU due primarily to a larger unit base (roughly 1.8b units now versus 1.6b units a year ago). We also estimate that CCT may record a YoY fall in DPU due to dilution from its 2009 rights issue. Meanwhile the Indonesian Rupiah continues to re-rate strongly (6596 IDR/SGD on average in 1Q10 versus 7701 IDR/SGD in 1Q09). The IDR’s ascent over the hedged rate employed by LMIR Trust could impact YoY DPU performance despite a stronger portfolio that has seen steady improvements in occupancy.
Leaping or waiting? Our primary focus this season is on the tone of manager guidance. REIT managers have been fairly aggressive and opportunistic in 2010 so far, with a sizeable S$1,218m worth of acquisitions announced year-to-date. The equity market was also active with FCT’s S$182.2m placement and the listing of Cache Logistics Trust [NOT RATED], whose S$417.3m IPO was 7.8x subscribed. The question is what happens next – market worries about how the second half of this year pans out have been well-documented and the consensus view is for a rather benign economic recovery. How this corresponds to/deviates from REIT managers’ guidance of individual earnings performance will be important to watch. Additionally, the delicate balance between 2H10 uncertainties and market appetite may prompt REIT managers to launch acquisition/fund raising plans sooner rather than later. How managers lay out acquisition and debt re-financing plans will also be worth tracking, in our view. We maintain our OVERWEIGHT stance on the sector. Top picks are ART and Suntec.
Office REITs – OCBC
Comparing the four office REITs
Vulnerable to negative rent reversions in FY10-11. Many of the leases secured on high rents during the hot 2007-2008 period will be expiring in 2010 and 2011. It is very likely that these leases will be renewed or replaced at much lower levels. This, in turn, will have an effect on revenue and distributable income, in our view. Among the four office REITs we discuss here, Frasers Commercial Trust [FCOT, NOT RATED] has the lowest percentage of NLA expiring (16.9%) in FY10 and FY11. K-REIT Asia [K-REIT, NR] follows with 32.2% of its NLA expiring in FY10-11. CapitaCommercial Trust (CCT) and Suntec REIT (Suntec) will see the most expiring office leases: 52.3% of CCT's gross rental income derived from office space will be up for renewal in FY10-11. Meanwhile, leases on 41.8% of Suntec's office NLA expire in FY10-11. While REITs may be hit by the appetite for newer buildings, we believe tenants will still favor quality assets such as Six Battery Road.
Expect significant re-financing activity. We estimate that S$2.4b of office REIT loans mature in both 2011 and 2012. The bulk of the maturities are for Suntec and CCT loans. We believe the REITs will tap on secured loan facilities, convertible bond issues and medium-term note programs to meet their re-financing needs. Some of the REITs could potentially test the CMBS market but in small amounts. We expect the REITs to start the re-financing process early to take advantage of the easing credit market, the low interest rate environment, and to assuage any remnant investor jitters. Quality sponsors and quality assets will continue to be crucial to securing competitive pricing.
Valuation. Office REITs trade at an average forward yield of 6.9%. They trade at an average price-to-book of 0.71x, which compares favorably to the broader S-REIT sector. We have BUY ratings on both Suntec and CCT as we feel their current valuations more than reflect the challenges facing the office sector. Suntec is one of our top picks for the broader S-REIT sector due to its exposure to the revitalizing Marina Bay area and its oft-forgotten retail portfolio (two Circle Line MRT stations open at Suntec City next month). In addition, we feel that market attitudes towards office REITs may start turning due to increased leasing activity and the supply management tactics taken by office landlords including CCT. Investors who want a purer exposure to the office sector may prefer CCT to Suntec.
Suntec – Daiwa
Yield attraction is inadequate
Office-sector and concentration risks still valid
We maintain our 3 (Hold) rating for Suntec and believe the unit price is fairly valued in light of lingering office-sector risks. Suntec has a slightly higher DPU yield (based on our forecasts) compared with other office S-REITs with office exposure, but it also has (arguably) greater concentration risk. We also expect Suntec’s office tenants to feel the pull of the new CBD office supply for FY10-12.
Even though Suntec has a major retail component to buffer the decline in the office segment, Suntec City Mall is not a defensive suburban mall, in our view, and could face some operational weakness in 2010 when the retail sector resettles after the opening of several major malls (indirect competition for Suntec City Mall) on Orchard Road in 2H09.
Opportunities and threats
We believe Suntec City‘s strategic location will be a long-term benefit for its core assets, but that the entire development would have to be refreshed and repositioned to stay relevant against newer projects (Marina Bay Sands and the South Beach project).
Risk of acquiring too soon
We believe the major risk factor would be an over-ambitious acquisition-growth agenda, which could cause Suntec to acquire assets including the Suntec convention centre or MBFC (phase one) before they are suitable (with sufficient income stability and DPU accretion) for injection.
Marginal DPU-forecast revisions
We have revised up our DPU forecasts by 0.7% for FY10 and 0.6% for FY12, but revised down our DPU forecast by 1.9% for FY11 after fine-tuning our forecast assumptions. We still expect a relatively sharp fully-diluted DPU decline of over 21% YoY for FY10 due to a pick-up in borrowing costs, weaker net-property income and the full-year impact of the S$152.9m private placement done on 22 December 2009.
Six-month target price lowered to S$1.30 (from S$1.33)
We have lowered our six-month target price, based on parity to our RNG valuation method (a finite-life Gordon Growth model), to S$1.30 from S$1.33. Our core operating-income estimate assumes average (monthly) passing rents of S$7.50 for Suntec City Office Towers, S$10.75 for Suntec City Mall, and S$10.00 for One Raffles Quay (one-third stake).
Suntec – BT
Suntec, Resorts World to cross-sell
Suntec Singapore and Resorts World Sentosa on Wednesday announced an exclusive partnership that will have the two properties cross-sell each other to create real business opportunities for both venues while growing the international MICE business for Singapore as a whole.
The exclusive agreement between Asia’s leading convention and exhibition centre and Singapore’s first integrated resort allows event planners to offer their clients the opportunity to conduct their exhibitions and day meetings within the Central Business District in Suntec Singapore, and continue with after-hours social functions at Resorts World Sentosa.
Together, the two heavyweights will cross-sell venues through joint sales calls, customised proposals and event concepts to international meeting planners, whose guests and delegates could enjoy seamless transfers between the two venues, as well as exclusive and customised services and experiences.