Category: Suntec

Suntec – UOBKH

Limited Upside From Dilution Impact

Suntec REIT has 56% exposure by net lettable area (NLA) to the office segment, and the rest in retail. Its portfolio includes three properties: Suntec City, Park Mall and Chijmes.

Key driver from office segment. Suntec REIT will ride on the upside of rental reversions for both the office and retail segments. Majority of Suntec REIT’s office leases are expected to expire in FY08 and FY09 (32.6% and 40.4% of NLA respectively). While decent retail rental renewals are expected, retail rental reversions generally increase at a lower rate than office rentals. In addition, asset enhancements of Suntec City Mall are near completion except for the Fashion Zone at Galleria scheduled to complete by this month. This leaves little room for Suntec REIT to do yield enhancements if it does not acquire additional assets, except for Park Mall which pales in impact to Suntec City where comparison with yield is concerned.

Dilution impact from deferred units. Suntec REIT will encounter dilution impact from their 207m deferred new units issued at IPO, which will start in Jun 08 through six equal semi-annual payments of S$34.5m each, and the deferred units are not subjected to any lock-up period.

Formula 1 to affect retail sales. With the Formula 1 race to be staged in Singapore in 2008-12, we expect retail sales in Suntec City to suffer as safety requirements to barricade the street circuit will obstruct access to the mall.

Initiate with HOLD, fair value: S$2.31. We initiate coverage of Suntec REIT with HOLD and a fair value of S$2.31, implying an upside of 10.4% and a total return of 14.33%. In deriving our fair value, we have factored in the full dilution impact from the deferred units. We suggest entry at S$2.00.

tfwee June 25, 2007 Suntec No Comments »

Office REITs – DBS

Riding on asset reflation

All-time high for office property. Office asset values continue to heat up, with transacted prices hitting new highs and now past the last peak, driven by property funds active in asset transactions. With the previous high for office assets set by the sale of 7 floors of Prudential Towers by Straits Steamship Land (Keppel Land), a record of S$2,200 psf set in 1996, office capital values have now hit an all-time high with latest sale of 1 Finlayson Green by Hong Leong to UK-based property fund Develica at unit price of S$2,650 psf (S$2,470 assuming full efficiency). This transaction is hot on the heels of the recent sale of Parakou Building at Robinson Road for S$2,013 psf.

Asset revaluation across office REITs set to continue. Along with the latest year-end revaluation, the Singapore office portfolio for S-REITs has been revalued upwards (CCT +10%, Suntec +30%, K-REIT +7.3%, Allco +7%). We expect asset reflation for office S-REITs to continue, with growth in average rents to boost office asset appraisals.

Boom and bane for office Reits. Office REITs are direct beneficiaries of asset reflation from potential upward revaluation based on market comparison of market transactions. However, with the current bullish outlook for Singapore office rentals, price expectations of asset owners have also escalated, compressing physical yields to lower levels (below 3% for the case of the Temasek Tower acquisition by MGPA). Yield accretiveness of acquisitions are reduced, and coupled with strong competition for assets from private property funds with more flexibility and less stringent regulations on investment and access to funds, S-REITs in our view are currently priced out of the market for commercial assets.

Overseas expansion would be a natural course to drive acquisition growth. K-REIT stands out in asset reflation scenario. While we prefer the DCF approach in valuing S-REITs because it takes into account the intrinsic cashflows generation ability of the underlying assets, RNAV approach could also possibly breach the gap, as it factors in asset pricing by market players acquiring assets at capital values pricing in future rental growth prospects. In an asset reflation scenario, K-REIT stands out with potential upside of 93% versus CCT (-2.7%), Suntec (+7.3%) and Allco (+48%). We have BUY recommendation for K-REIT with target price of S$3.70 per unit based on DCF estimates.

tfwee June 11, 2007 AllCo, CCT, FCOT, KepREIT, Suntec No Comments »

Singapore Reits – UBS

Global Equity Research PT adjustments following rise in spot risk free rate

Event – PT revisions downwards by average -1.8%
We have moved the spot risk free in our DCF model to 2.9% for yr0-10, from 2.7% following recent interest movements. Our terminal rate (yr10+) is unchanged at 3.6%.

Impact – Downgrade CCT and SUN

This move lifts our price targets downwards by -1.8% on average. Due to recent price movements we have moved CCT from a Neutral 2 to a Reduce 2 and SUN from a Buy 1 to a Neutral 1. We believe the office rental uptrend has been largely priced in and it is increasingly difficult for these REITs to make yield-accretive acquisitions domestically.

Action – Overweight Industrial & Retail

Our key picks among the SREITs are 1. Mapletree (acquisition upside potential not priced in) 2. Cambridge (re-rating potential & possible acquisition upside) =3. Domestic retail – FCT and CMT (organic growth likely to continue to exceed expectations). We maintain a Buy 2 on KREIT due to the strong expected rental reversions which we believe have not been priced in.

Valuation

The sector continues to offer relatively attractive pricing currently, with a 4.3% CY’07 yield, 6.0% ’07-12 DPU growth, and 7.5% upside to our price target. We recognise the expected S$5bn+ of capital raising in 2007 ($945m YTD) is likely to provide a moderate headwind.

tfwee June 5, 2007 CCT, CMT, ESR, FCT, KepREIT, MLT, Suntec No Comments »

Suntec – BT

Suntec Reit’s Q2 net up 19.3%

SUNTEC Real Estate Investment Trust (Suntec Reit), which is controlled by Hong Kong tycoon Li Ka-shing, yesterday reported a 19.3 per cent increase in distributable income for its second quarter ended March 31, on the back of higher office rents.

The trust, based on Suntec City and other properties, said that distributable income came to $28 million for the three months ended March, up from $23.5 million for the same period a year ago.

The Reit’s distribution per unit rose 8.5 per cent to 1.97 cents, up from 1.81 cents. Net property income rose 10.3 per cent to $35.2 million, from $32 million for the previous corresponding period.

The Reit attributed the improved performance to higher office revenues from its Suntec City and Park Mall offices. For Suntec City, revenue was driven by both higher occupancy and increased rentals, said the Reit. Revenue from the property was also boosted by strata office space acquisitions.

‘Office rents continued to register double-digit growth rates in the first quarter of 2007 as vacancy in Grade A office space dropped further to 0.4 per cent from 0.8 per cent in the previous quarter,’ Suntec Reit said in a filing to the Singapore Exchange.

Office rents in Singapore are close to a 10-year high as demand continues to grow amidst limited supply. Market watchers expect the rent hikes to continue as supply is expected to remain tight at least until 2010 when several major office complexes are due to be completed.

In the meantime, Suntec Reit plans to continue boosting its portfolio. It said on Jan 30 that it plans to expand its commercial assets in Singapore by about 50 per cent to $3 billion in two to three years to benefit from the economic growth.

Its portfolio of investment properties was valued at $3.87 billion as at March 31, 2007, giving the trust a ‘revaluation surplus’ of $613.6 million. Suntec Reit’s shares fell 2 cents, or one per cent, to close at $2 yesterday. The share price has risen 9.9 per cent this year.

tfwee April 27, 2007 Suntec No Comments »

Suntec – DMG

Office segment continues to shine

Suntec Reit S 2Q07 distributable income grew 19% yoy and 3.7% qoq to $28m. The results were boosted by healthy organic growth within its flagship assets, contributions from additional Suntec office space and better cost management. Looking ahead, the group should continue to leverage into the rising office leasing market with a sizeable 80% of its office NLA scheduled to be renewed over FY07-09. In addition to a sizeable retail renewal profile, value-add activities at Suntec retail mall should underpin bottomline growth. Maintain Buy with a revised price target of $2.20. This translates to a potential absolute return of 14% over the next 12 months.

Another record quarter. Suntec Reit reported 2Q07 distributable income of $28m, up 19.3% yoy, bringing 1H07 distribution income to $55.1m, an increase of 20.5% over previous period. However, 2Q07 and 1H07 DPU rose a more modest 8.5% and 9.5% to 1.97cts and 3.86cts respectively due to a 9% enlargement in issued units. There was a $613.6m revaluation surplus which lifted book NAV to $1.83.

Strong organic growth. Office revenue accounted for 37% of topline in Q2. This stream of income notched a 23% yoy rise to $17.1m aided by increased occupancy of 99.2% and new contributions from the 30172sf strata title space acquired at Suntec City and higher contracted rental rates. Transacted rents continued to climb to $8.50-9psf/mth compared to the average outgoing levels of $4.60-4.80psf.

Robust lease reversion schedule. Outlook remains positive with 33% and 40% of office NLA to be renewed in FY08 and FY09. This should enable Suntec to leverage into the robust office leasing market. Plans to buy more office strata space at Suntec should deepen the group s exposure to the rising office sector.

Retail income to benefit from AEI. Apart from the renewal of 54% of retail NLA over the next 2-3 years, retail revenue should be lifted by the asset enhancement initiatives such as establishment of a youth and fashion zones at Suntec Mall. An estimated 60-72% of these areas have been pre-committed.

Maintain Buy with revised price target of $2.20. Suntec is currently trading at FY07 and FY08 yields of 4.1% and 4.6%. While Suntec does not have a visible pipeline, near term growth would be underpinned by strong performance of the office leasing market.