Towards Financial Freedom

Suntec REIT - Ushering In Phase 3 AEI Soon

kiasutrader
Publish date: Fri, 23 Jan 2015, 12:21 PM
4Q14/FY14  results in line with DPU rising  0.6%/0.8% YoY to 9.328/9.400 cents,  accounting  for  28%/103%  of  our  full-year  estimates.  Reiterate BUY  with  a  higher  DDM-derived  SGD2.11  TP  (from  SGD2.00,  5.5% upside),  implying  a  10.1%  total  returns.  Suntec  City  Phase  3  is estimated to be 72% committed,  (3Q14:  60%).  Office spaces  in Suntec City  remained  fully  occupied  with  an  8.3%  increase  in  rent  (SGD8.92 psf/month).
 

Results in line. Suntec REIT's 4Q14/FY14 DPU rose 0.6%/0.8% YoY to 9.328/9.400  cents,  accounting  for  28%/103%  of  our  full-year  estimate. There was a 0.18  cent  DPU top-out in 4Q14,  higher  than the 0.04  cent paid  out  in  3Q14.  Note  that  Suntec  REIT  received  SGD147m  in  cash proceeds  from the sale of Chijmes in 1Q12. Since 1Q13, management has  topped  up  SGD53.5m.  Financing  cost  inched  up  modestly  2.44% from 2.42% in the quarter before while gearing was maintained at 35.5%                               .

Suntec City Phase 3  asset enhancement initiative (AEI)  update.  Weestimate  that  Suntec  City  Phase  3 occupancy  rate  reached  72%  as of Dec  2014  from  60%  in  the  previous  quarter.  Overall  AEI  committed occupancy  (the  entire  Suntec  City  remaking)  to  date  stands  at  91.3%. (3Q14:  86.0%).  Rentals  for  Phase 3  were  on  the  softer side,  dragging down  overall  committed  passing  rent  to  SGD12.27  psf/month  from SGD12.59 psf/month in 3Q14.
 

Office  occupancy  to  remain  high  in  coming  years.  As  of  end-Dec2014, Suntec City office maintained its full occupancy, with leases for the quarter secured at  a higher average rent of SGD8.92 psf/month (3Q14: SGD8.24  psf/month).  We  are  confident  that  Suntec  City  office  will maintain its high occupancy despite South Beach Development's (SBD) completion  in  2015,  as  SBD  has  already  achieved  80-90%  precommitment.
 

Near-term  growth  engine.  We  are  optimistic  on  Suntec  REIT's  AEIefforts and remin confident that it will drive near-term DPU growth for the counter, following the completion of all three phases at S untec City Mall. We forecast Suntec  REIT's DPU to grow at a CAGR of 3.7% over he  next  three  years.  Reiterate  BUY  with  a  higher  DDM-derived  TP  of SGD2.11  (from  SGD2.00),  implying  P/B  ratio  of  one  (cost  of  equity  = 7.5%; TG = 3%).















Source: OSK-DMG
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