SINGAPORE (Oct 30): Suntec REIT announced its 3Q18 results and posted a 2.1% decrease in DPU to 2.483 cents compared to 2.535 cents in 3Q16, due to an enlarged units base which included 95.7 million new units issued in May.
Following the announcement, CIMB continues to recommend investors to “reduce” on Suntec REIT with an increased target price of $1.83.
See: Suntec REIT announces 2.1% lower 3Q DPU of 2.483 cents; 1.1 mil units traded
In 3Q18, the REIT renewed/leased 150,000 sq ft of office space at an average of $8.35psf/month, of which 35% were new leases with a 68% retention rate.
In a Friday report, analyst Lock Mun Yee says, “This contributed to an uptick in performance at Suntec City Singapore, which was partly offset by a lower joint venture (JV) income from Marina Bay Financial Centre (MBFC) and One Raffles Quay (ORQ).”
The analyst anticipates Suntec City growth will remain sluggish in the near term due to ongoing tenant remixing exercise.
In 3Q18, the REIT signed 117,000 sq ft of retail leases, of which 70% were new tenants as the manager continued to rejig its tenant mix at Suntec City Mall.
Committed occupancy was 99.3% while YTD shopper footfall and tenant sales rose by 12.2% and 4% respectively, as a testament to its strengthening retail offerings. It has another 3.7% and 23% of retail NLA to be renewed in FY17 and FY18 respectively.
“As Suntec REIT will continue with its active tenant adjustment strategy, we anticipate rental growth to remain modest during this period,” says Lock.
In terms of the REIT’s inorganic growth outlook in the medium term, it has the option to buy an additional 25% stake in the Southgate Complex in Melbourne as well as potentially one of the office towers after 9 Penang Road has completed its redevelopment.
According to the analyst, this acquisition can raise the REIT’s gearing to 42% from 36.8% currently.
OCBC is maintaining its “hold” call on Suntec REIT with a target price of $1.80.
The REIT secured average rents of $8.61 psf/month for its Singapore office portfolio and $8.35 psf/month for its Suntec City Office, which were both lower q-o-q.
In a Monday report, analyst Andy Wong Teck Ching says, “We understand that this was partly attributed to renewals for larger spaces, which typically command lower rentals on a psf basis.”
The analyst also remains cautious on the REIT’s rental outlook in the near term despite office rents appearing to have bottomed out, as existing vacancies in the market and secondary spaces still need to be backfilled.
Meanwhile, the REIT posted a 2.0% y-o-y decrease in Suntec City Mall’s retail performance. Wong believes that this was largely due to passing rents.
“However, encouraging signs can be seen from the mall’s healthy growth in footfall (+12.2%) and tenants sales psf (+4.9%) for 9M17, albeit partly due to a low base effect, in our view,” says Wong.
As at 11.48am, units in Suntec REIT are trading at $1.94 or 0.91 time FY17 book, with a dividend yield of 5.2%.
