Towards Financial Freedom
SUNTEC REIT - Counter fairly priced at the moment
2Q12 results within expectations. Suntec (SUN) reported its 2Q12 results, posting gross revenue and distributable income of S$71.0m (+15.8% YoY) and S$53.0m (-5.7% YoY) respectively. DPU for the period came in at 2.36S''. Together with 1Q12 DPU of 2.45S'', 1H12 DPU accounted for 49.2% of our FY12 DPU forecast. During 2Q12, NPI dropped by 3.1% YoY bringing it to S$45.4m; this is mainlyattributable to the divestment of CHIJMES and the commencement of the AEI work in June. Going forward, we expect SUN's DPU to continue to drop marginally amid the loss in income from the divestment of CHIJMES and lower income contribution from Suntec City as a result of the AEI. Given a rally in share price of 40.5% YTD, we believe this counter is fairly priced at the moment as we downgrade our call to NEUTRAL with an unchanged TP of S$1.51. SUN is currently trading at 5.3% spread to 10-year bond yield which is 33bps above its long term (5.0%) mean spread, our TP of S$1.51 translates to a spread of 5.1%.
Drop in NPI and DPU in 2Q12 due to loss in income and AEI. During 1H12, both the DPU and NPI fall marginally by 2.2% and 3.1% respectively, mainly attributed to the lost in income due to the divestment of CHIJMES and the commencement of the AEI at Suntec City in June. Going forward, management indicated the proceeds from the divestment of CHIJMES to be deployed to partially fund the AEI at Suntec Singapore and Suntec City Mall, and to mitigate any temporary dip in distribution per unit during the execution of the AEI.
Gain in revenue offset by lost in income. During 2Q12, although ORQ and MBFC continue to outperform the general office market, the loss in income support from MBFC has dragged down the income contribution from these properties by 3.1% YoY. Together with an expected loss in income due to the AEI at Suntec and the the divestment of CHIJMES, we expect the additional revenue from ORQ and higher office occupancy at Suntec City (100% as at June 2012) to be offset by these losses in income in the coming quarters. Given a rally in share price by 40.5% YTD, we believe this counter is fairly priced at the moment as we downgradeour call to NEUTRAL with an unchanged TP of S$1.51.
Drop in NPI and DPU in 2Q12 due to loss in income and AEI. During 1H12, both the DPU and NPI fall marginally by 2.2% and 3.1% respectively, mainly attributed to the lost in income due to the divestment of CHIJMES and the commencement of the AEI at Suntec City in June. Going forward, management indicated the proceeds from the divestment of CHIJMES to be deployed to partially fund the AEI at Suntec Singapore and Suntec City Mall, and to mitigate any temporary dip in distribution per unit during the execution of the AEI.
Gain in revenue offset by lost in income. During 2Q12, although ORQ and MBFC continue to outperform the general office market, the loss in income support from MBFC has dragged down the income contribution from these properties by 3.1% YoY. Together with an expected loss in income due to the AEI at Suntec and the the divestment of CHIJMES, we expect the additional revenue from ORQ and higher office occupancy at Suntec City (100% as at June 2012) to be offset by these losses in income in the coming quarters. Given a rally in share price by 40.5% YTD, we believe this counter is fairly priced at the moment as we downgradeour call to NEUTRAL with an unchanged TP of S$1.51.
Upside in DPU to come from conversion of LLP in 2H12. Back in June, SUN and its partners have successful converted BFC Development Pte. Ltd. (BFCD) ' a company which holds Marina Bay Financial Centre Towers 1 & 2 and the Marina Bay Link Mall, from a private limited company to a limited liability partnership. By doing so, BFCD will no longer be subjected to corporate income tax. We expect this savings in taxes to contribute an additional 0.14S'' and 0.18S'' to FY12 and FY13 DPU respectively.
AEI at Suntec. As previously revealed by management, Suntec City will be undergoing a major AEI which will commence in June 2012. This AEI will be spread over 3 phases lasting into 4Q2014. Upon completion,retail NLA of Suntec City will increase to 980,000 sf (+14.6%) together with a projected increase of stabilised rents by 25%.The first phase of the project will include working on 193,000 sf of NLA in the Galleria zone and Fountain Terrace zones and is scheduled to be completed by 2Q13. During phase 1 and 2, minimal funding is required as it the Capex will largely be contributed from the proceeds of CHIJMES and borrowings. To date, 58.5% of phase 1 NLA has been pre-committed.
No immediate need for capital raising. With a debt to asset ratio of 37.5% and cash on hand of S$190m as at 31st June 2012, together with only S$200m (total outstanding debt: S$2490m) due to be refinanced in FY12, management indicated that there is no requirement to raise capital in the near term.
Source: OSK
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