Suntec REIT - CGS-CIMB Research 2022-10-26: 3Q22 DPU Dragged By Higher Funding Cost

Suntec REIT - 3Q22 DPU Dragged By Higher Funding Cost

SUNTEC REAL ESTATE INV TRUST (SGX:T82U) | SGinvestors.ioSUNTEC REAL ESTATE INV TRUST (SGX:T82U)
  • Suntec REIT (SGX:T82U) reported 3Q22 gross revenue of S$107.3m (+15.7% y-o-y), while distributable income fell 5.8% y-o-y to S$60m with the inclusion of S$5.8m of capital distribution, partly offset by higher funding cost and greater proportion of fees in cash. 3Q22 DPU came in at 2.084 cents, -6.6% y-o-y. See Suntec REIT's earnings announcement dated 2022-10-26.
  • The better operating performance was due to higher contributions from Suntec City and The Minster Building, partly offset by lower occupancy at 177 Pacific Highway and weaker A$ and £. As at end-3Q, office/retail committed occupancy stood at 97.9%/95.9%.
    • Singapore office contribution, including JV income, grew 5.2% y-o-y to S$46.4m in 3Q22, thanks to better occupancy and rents at Suntec Office, higher JV income from One Raffles Quay (ORQ) and Marina Bay Financial Centre (MBFC) Properties. Suntec REIT enjoyed positive rental reversion of 5.9% (2Q: +5.7%) for its office portfolio in 3Q, with demand coming from the TMT, banking and financial services, and legal sectors.
    • Suntec REIT has a remaining 2.6% and 21.9% of office area expiring in 4Q22F and FY23F and expects rent growth to remain robust on tight supply.
    • 3Q22 retail NPI rose 39.4% y-o-y to S$45.4m, due mainly to higher occupancy and rents and marcoms revenue at Suntec Mall and absence of rental rebates. Suntec Convention also turned in a positive S$2.8m profit. Committed occupancy at Suntec Mall improved to 96.7% at end-3Q22 with rental reversions at a positive 4.8% in 3Q22 as shopper traffic and tenant sales recovered to 87%/121% of pre-COVID levels.
    • Suntec REIT has 2.5% of retail leases expiring in 4Q22F and 23.4% in FY23F. Management guided that recovery of retail is likely to continue into FY23F with a rebound in MICE business and shopper footfall.
    • Australia revenue declined 13.8% y-o-y due to lower occupancy at 177 Pacific Highway and weaker A$, 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.
  • Suntec REIT’s gearing was stable q-o-q at 43.1%. Average funding cost ticked up 25bp q-o-q in 3Q. Suntec REIT has ~21% of its total debt due to be refinanced in FY23F and we anticipate average funding cost to continue rising into next FY.
  • We lower our FY22-24F DPU estimates for Suntec REIT by 4.5-10.9% to factor in higher interest cost and bake in management’s guidance for higher utilities cost in FY23F. Our DDM-based target price for Suntec REIT is also trimmed to S$1.55 on the back of lower earnings and higher cost of equity of 7.61%.




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 | Natalie ONG CGS-CIMB Research | https://www.cgs-cimb.com 2022-10-26



Read also CGS-CIMB's most recent report:
2023-01-20 Suntec REIT - Dragged By Higher Funding Cost.

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Listing of research reports at Suntec REIT Analyst Reports.

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