Suntec REIT reported 1Q15 revenue of S$74.5m, an increase of 12.9% YoY. However, DPU was flat at 2.23 S cents and fell short of ours and the street’s expectations. Although committed occupancy for Suntec City mall’s Phase 3 AEI improved from 70.5% to 80%, we believe leasing momentum has been sluggish as it is slated to open soon. Rental rates have also come under pressure for this mall. On a positive note, Suntec REIT’s office segment remains stable, and management is confident of the performance of this segment for the remainder of the year. Given the slow start to FY15, we see the need to pare our FY15 revenue/DPU forecasts by 4.0%/4.9%, and our FY16 revenue/DPU projections by 4.4%/4.9%. Consequently, we lower our DDM-derived fair value estimate from S$1.86 to S$1.72. Maintain HOLD on Suntec REIT. The stock is currently trading at FY15F distribution yield of 5.3%.
1Q15 results fell short of expectations
Suntec REIT reported 1Q15 revenue of S$74.5m, an increase of 12.9% YoY. This was largely driven by completion of Phase 2 of the AEI at Suntec City mall in Jun 2014 and stronger contribution from Suntec Singapore Convention & Exhibition Centre. Although distributable income jumped 10.1% YoY to S$56.0m, DPU was flat at 2.23 S cents and fell short of ours and the street’s expectations, forming 21.7% of our FY15 projection and 22.1% of Bloomberg consensus estimates.
Retail leasing momentum still sluggish
Suntec REIT received TOP for its Suntec City mall Phase 3 AEI in Feb this year, and most tenants are carrying out fit-out works now. Despite the fact that Phase 3 will be opening soon, the committed occupancy rate stands at ~80%, although this is an improvement from the 70.5% figure recorded at end-2014. Leasing momentum has been sluggish, in our view. Overall committed passing rents for Suntec City mall is currently at the S$12.15 psf per month level (on a stabilised basis), below its initial target of S$12.59 psf per month and also a decline from the S$12.27 psf per month registered in 4Q14. A silver lining though, is that majority of the un-leased space at Phase 3 is on the ground level, which tends to fetch higher rental rates. Suntec City’s office segment remained stable, with committed occupancy at 99.6% and leases secured in 1Q15 came in at S$9.24 psf per month, higher than in 4Q14 (S$8.92 psf per month). Management remains confident of the performance of this segment for the remainder of the year.
Maintain HOLD
Given the slow start to FY15, we see the need to pare our FY15 revenue/DPU forecasts by 4.0%/4.9%, and our FY16 revenue/DPU projections by 4.4%/4.9%. Consequently, we lower our DDM-derived fair value estimate from S$1.86 to S$1.72. Maintain HOLD on Suntec REIT. The stock is currently trading at FY15F distribution yield of 5.3%.
Suntec REIT reported 1Q15 revenue of S$74.5m, an increase of 12.9% YoY. This was largely driven by completion of Phase 2 of the AEI at Suntec City mall in Jun 2014 and stronger contribution from Suntec Singapore Convention & Exhibition Centre. Although distributable income jumped 10.1% YoY to S$56.0m, DPU was flat at 2.23 S cents and fell short of ours and the street’s expectations, forming 21.7% of our FY15 projection and 22.1% of Bloomberg consensus estimates.
Retail leasing momentum still sluggish
Suntec REIT received TOP for its Suntec City mall Phase 3 AEI in Feb this year, and most tenants are carrying out fit-out works now. Despite the fact that Phase 3 will be opening soon, the committed occupancy rate stands at ~80%, although this is an improvement from the 70.5% figure recorded at end-2014. Leasing momentum has been sluggish, in our view. Overall committed passing rents for Suntec City mall is currently at the S$12.15 psf per month level (on a stabilised basis), below its initial target of S$12.59 psf per month and also a decline from the S$12.27 psf per month registered in 4Q14. A silver lining though, is that majority of the un-leased space at Phase 3 is on the ground level, which tends to fetch higher rental rates. Suntec City’s office segment remained stable, with committed occupancy at 99.6% and leases secured in 1Q15 came in at S$9.24 psf per month, higher than in 4Q14 (S$8.92 psf per month). Management remains confident of the performance of this segment for the remainder of the year.
Maintain HOLD
Given the slow start to FY15, we see the need to pare our FY15 revenue/DPU forecasts by 4.0%/4.9%, and our FY16 revenue/DPU projections by 4.4%/4.9%. Consequently, we lower our DDM-derived fair value estimate from S$1.86 to S$1.72. Maintain HOLD on Suntec REIT. The stock is currently trading at FY15F distribution yield of 5.3%.
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