Suntec REIT is “feeling the pinch” of the Covid-19 outbreak and circuit breaker measures in Singapore, says the OCBC Investment Research team in a July 23 report, with its retail and convention performance at its namesake shopping mall impacted by low footfall and cancelled events.
Gross revenue is forecasted to fall to $283 million in FY2020F from $366.7 million in FY2019. Likewise, net property income is projected to dip to $189.7 million from $236.2 million over the same period.
2Q2020 DPU fell 35.1% y-o-y to 1.53 cents as management retained 10% of its distributable income and there were also no capital distributions for the quarter.
Despite the REIT’s less-than-stellar results, they still came in within OCBC’s 2Q20 expectations. As such, the team is issuing a “buy” call on the company, with a raised fair value of $1.57, from $1.50 previously.
That said, Suntec REIT’s gloomy 1H2020 was partially offset by contributions from acquisitions in Australia. “In Australia, Suntec REIT’s office portfolio is also expected to be resilient, underpinned by firm occupancy and minimal lease expiries in FY2020, although the AUD volatility remains a risk,” says the team.
“Suntec REIT’s Australia operations were largely stable, as majority of its tenants are large corporations and government tenants. There will also be incremental contributions from 21 Harris Street and 477 Collins Street ahead, while we note that the AUD has appreciated strongly against the SGD since mid-March.”
Suntec REIT holds a 100% interest in a commercial building located at 177 Pacific Highway, Sydney; a 50.0% interest in Southgate Complex, Melbourne; a 50.0% interest in a commercial building under development, which is located at Olderfleet 477 Collins Street, Melbourne; and a 100% interest in a commercial building located at 55 Currie Street, Adelaide, Australia.
The company’s office segment in Singapore is expected to be a “brighter spot”, says OCBC. For its office segment, Suntec REIT highlighted that approximately 50% of tenants at Suntec City office are SMEs, of which 40% of these tenants are estimated to be able to qualify for rental assistance.
For 2020, Suntec REIT expects to provide three to four months of rental assistance from its own pocket for the majority of its tenants at Suntec City mall.
“Operationally, committed occupancy for Suntec REIT’s Singapore office portfolio remained high at 98.6%, and positive rental reversions of 9.1% were achieved in 2Q2020 at Suntec City Office.”
While management still guided for positive rental reversions in 2H2020, it expects a moderation in magnitude. For retail, footfall at Suntec City mall slumped 83.4% y-o-y in 2Q20 due to the circuit breaker period. It has since moderated to -60% y-o-y in July.
Rental reversions were -2.4% for the quarter (1H20: +8.4% due to strong 1Q) and management expects negative rental reversions of -10% to -20% in 2H20. Early termination of leases was 1% of NLA (net lettable area) in 1H2020 and expected to be 4% in 2H2020. This will exert pressure on occupancy rates. Rent deferment was 5% of NLA in 1H2020 and management expects to see another 5% in 2H2020.
As at 1.56pm, units in Suntec REIT are trading 1 cent lower, or 0.7% down, at $1.38.
