Suntec REIT - Recovery In Sight
- Suntec REIT (SGX:T82U) reported 1H22 gross revenue of S$203.5m (+22.1% y-o-y), while distributable income rose a higher 16.9% y-o-y to S$138.7m with the inclusion of S$11.5m of capital distribution. 1H22 DPU was 4.81 cents, +15.8% y-o-y (46.3% of FY22F). A better operating performance was due to contributions from The Minster in the UK and higher income from Suntec City, 21 Harris St and 477 Collins St, partly offset by lower occupancy at 177 Pacific Highway and weaker A$.
- As at end-1H, Suntec REIT's office and retail’s committed occupancy stood at 97% and 95.3%.
- Post a revaluation exercise in Jun 2022, Suntec REIT’s gearing stood at 43.1%. All-in financing cost stood at 2.51%, and 56% of Suntec REIT’s debt are hedged into fixed rates. Management guided that every 50bp increase in funding cost would impact distribution income by 4.7%.
- Singapore office contribution, including JV income, grew 10.7% y-o-y to S$94m in 1H22, thanks to better occupancy and rents at Suntec Office, higher JV income from One Raffles Quay, partly offset by divestment of Suntec Office strata units.
- Australia contributions declined 3.2% y-o-y due to lower occupancy at 177 Pacific Highway and Southgate and weaker A$, partly offset by higher take-up and rent at 477 Collins St and 21 Harris St.
- UK contributions benefited from income from the Minster Building and lower retail rent rebates.
- Looking ahead, there are minimal office leases expiries of 5.1% in Singapore, 2.3% in Australia and 1.7% in the UK for 2H22F.
- Suntec REIT's 1H22 retail NPI rose 40% y-o-y to S$45.4m, due mainly to higher occupancy and rents at Suntec Mall, the absence of sinking fund contributions and higher income from Marina Bay Link Mall. Suntec Convention also turned in a positive S$2.9m profit. Suntec REIT has 9.8% of retail leases expiring for 2H22F. Management guided that retail rental reversions are expected to remain mildly positive for FY22F.
- We lower our FY22-24F DPU estimates for Suntec REIT by 3.65-5.51% to factor in slightly higher interest cost and bake in management’s guidance for higher utilities cost in FY23F. However, we believe the 13% decline in Suntec REIT's share price over the past 3 months would likely have priced in these challenges. As such, we upgrade Suntec REIT to ADD with an unchanged DDM-based target price of S$1.79.
Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @ https://www.itradecimb.com.sg/.
LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2022-07-28 2022-07-28
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