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.
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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Rickmers – BT
Rickmers cuts Q1 DPU by 73% to conserve cash
It expects funding issue to be resolved with recent signing of 2 term sheets
RICKMERS Maritime kept its income distribution conservative in continued efforts to conserve cash with a distribution per unit (DPU) of 0.57 US cents – 73 per cent lower compared to Q1’09 – for the first quarter ended March 31.
However, its management stressed that the trust has recently signed two important term sheets that are finally expected to resolve its funding issues.
Last week, Rickmers announced that a term sheet has been signed with its lending banks for a five-year extension of its US$130 million top-up loan facility – which matures April 30 – and a waiver of its value-to-loan covenants for up to three years.
Another term sheet has also been signed with Polaris Shipmanagement Company, which is a wholly owned subsidiary of the Rickmers Group, to discharge the trust from its obligations to purchase three 4,250 TEU and four 13,100 TEU container ships worth US$918.7 million.
As such, it will pay Polaris compensation of US$64 million, of which US$15 million will be paid in cash and the balance converted into an interest bearing convertible loan to the trust, maturing in 2014.
During the quarter, income available for distribution slipped 8 per cent to US$17.93 million while net profit took a 51 per cent tumble to US$5.43 million, mostly due to US$5.3 million of unrealised losses from two of its interest rate swaps. Earnings per unit were 1.28 US cents, down from 2.61 US cents.
Charter revenue was 14 per cent higher at US$37.16 million compared to the previous corresponding quarter, thanks to maiden contribution from its 4,250 TEU containership Hanjin Newport, as well as full-quarter contributions from two 4,250 TEU vessels.
The Kaethe C Rickmers, a 5,060 TEU containership (formerly Maersk Djibouti), has also been fixed on a 12-month charter, although at a lower rate.
The trust continued to maintain a high level of efficiency on the operations front with no off-hire days in Q1’10, Rickmers said.
Cash flow from operating activities increased by two per cent to US$27.64 million thanks to higher charter revenue, though this was offset by increased expenses.
‘With the return of consumer demand we have good reason to remain cautiously optimistic about the prospects of the container shipping industry. Our focus in the coming months is to finalise documentation and seek the necessary approvals to conclude the various agreements with our creditors,’ highlighted Thomas Preben Hansen, CEO of trustee-manager Rickmers Trust Management.
Rickmers Maritime’s portfolio currently comprises 16 containerships, of which 15 are chartered out for periods of between seven and 10 years.