Results Review, 22 October 2014
Suntec REIT (SUN SP)
Buy (Maintained)
Property - REITS Market Cap: USD3,536m
Target Price: Price:
SGD2.00 SGD1.80 Macro Risks
Another Quarter Of Steady Results
Growth Value
Suntec REIT (SUN SP) Price Close
Relative to Straits Times Index (RHS)
1.90
108 106
1.80
104 102
1.70
100
0 0 . 2 0 0 There were no surprises in Suntec REIT’s 3Q14 results, with a 0.04 . 0 cents DPU top-out. Post-AEI, Suntec City Mall’s average passing rent 0 for Phases 1 and 2 hit SGD12.59 psf/month (+21.8% YoY). We believe 0 the REIT’s near-term share price performance could be supported by the completion of its AEI at Suntec City Mall. We assume coverage with BUY, with our DDM-derived TP of SGD2.00 implying a 11.1% upside.
Results in line. Suntec REIT’s 3Q14/9M14 distribution per unit (DPU) rose 1.7/0.8% YoY to 2.33/6.82 cents, which accounted for 25/75% of our full-year estimate. There was a 0.04-cent DPU top-out in 3Q14, lower than the 0.2 cents paid out in 2Q14. Recall that Suntec received cash proceeds of SGD147m from the sale of Chijmes in 1Q12. Since 1Q13, management has topped up SGD44m in total distributions. The REIT’s gearing inched up modestly to 35.5% (2Q14: 35.3%), while its allin financing cost dropped to 2.42% from 2.62% in the quarter before.
Suntec City’s asset enhancement initiative (AEI) is on track. Suntec City’s Phase 2 opened on 1 Jun, and now has a 99.4% occupancy rate at present. Phase 1 is already fully occupied. Phase 3 is on schedule to be completed by year-end and is currently 60% pre-committed.
98 1.60
96 94
1.50
92
Sep-14
Jun-14
Apr-14
Feb-14
Dec-13
88
Oct-13
Vol m
90
1.40 90 80 70 60 50 40 30 20 10
Source: Bloomberg
Avg Turnover (SGD/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (SGD) Free float (%) Share outstanding (m) Shareholders (%)
10.4m/8.26m 0.6 11.1 1.49 - 1.86 88 2,498
Raffles Investments Limited ARA Asset Management Limited Schroders PLC
7.1 5.0 4.7
Share Performance (%) YTD
1m
3m
6m
12m
Absolute
16.9
2.3
(1.9)
4.3
5.3
Relative
16.5
6.1
2.1
6.6
5.8
Shariah compliant
2 . 2 0 . 2
Full office occupancy. At end-September, Suntec City offices achieved full occupancy (2Q14: 99.4%), with one anchor tenant renewing 150k sq ft at lower rates. This resulted in a drop in the average rent for the leases secured for the quarter to SGD8.24psf/month from SGD8.98psf/month. With 17.9-23.7% of office leases (by net leasable area) expiring each year for the next three years, we remain confident that Suntec’s proactive leasing management would ensure that its office portfolio is fully optimised. Near-term growth engine. We are optimistic on Suntec REIT’s AEI efforts and remain confident that it will achieve average rentals above its original target of SGD12.59 psf/month, following the completion of all three phases at Suntec City Mall. We forecast Suntec’s DPU to grow at a CAGR of 3.4% over the next three years. We assume coverage on the stock with a BUY recommendation and a DDM-derived TP of SGD2.00 (CoE: 7.0%, TG: 2%).
Forecasts and Valuations
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
Total turnover (SGDm)
262
234
298
379
396
Net property income (SGDm)
163
149
191
242
252
Reported net profit (SGDm)
425
382
227
276
293
Total distributable income (SGDm)
182
221
213
211
228
DPS (SGD)
0.08
0.10
0.09
0.08
0.09
DPS growth (%)
(4.7)
20.0
(12.3)
(1.6)
7.3
9.5
10.6
19.8
16.4
15.6
Ivan Looi +65 6232 3841
Recurring P/E (x)
[email protected]
P/B (x)
0.87
0.84
0.86
0.86
0.86
Dividend Yield (%)
4.5
5.4
5.1
5.5
5.7
Singapore Research +65 6232 3845
Return on average equity (%)
9.4
8.0
4.5
5.3
5.5
[email protected]
Return on average assets (%)
5.6
4.8
2.7
3.1
3.2
0.0
0.0
0.0
Our vs consensus EPS (adjusted) (%) Source: Company data, OSK-DMG
See important disclosures at the end of this report
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1
Suntec REIT (SUN SP) 22 October 2014 Figure 1: Summary of Suntec's 3Q14 results (SGD m)
3Q13 2Q14 3Q14
%QoQ
Gross revenue
65.9
5.0
8.5
Operating expenses
(25.6) (22.0) (22.7)
3.3
(11.3)
NPI
40.3
46.1
48.8
5.7
21.1
5.7
4.4
6.0
36.3
4.5
3.3
8.9
nm
nm
Other income Manager's fees Trustee fees
68.1
71.5
(10.0) (10.5) (10.9) (0.8)
(0.8) (16.9)
%YoY Comments
Other expenses
(4.3)
(3.3)
(4.5)
36.3
4.5
Net income before financing cost & tax
30.9
35.9
22.5
(37.3)
(27.3)
Net financing costs
(14.1) (13.2) (9.3)
(29.4)
(33.9)
EBT
16.8
22.7
13.2
(41.9)
(21.7)
Share of profit of jointly controlled entities
16.0
14.2
14.4
1.1
(10.0)
4.6
(1.5)
0.8
nm
(83.2)
Total return before tax
37.5
35.4
28.4
(19.9)
(24.3)
Tax
(0.2)
(1.6)
(2.5)
53.0
1,056.5
Total return - reported
37.3
33.8
25.9
(23.5)
(30.6)
Attributable to unitholders
36.9
31.9
32.7
2.5
(11.4)
0.3
1.9
(6.9)
nm
nm
Total return (ex exceptionals)
32.6
35.3
25.1
(29.0)
(23.1)
Net income before share of jointly controlled entity
16.8
22.7
13.2
(41.9)
(21.7)
Add-back: Non tax deductibles
30.5
28.9
44.1
52.5
44.4
Income available for distribution
47.3
51.6
57.3
11.0
20.9
4.5
5.0
1.0
(80.0)
(77.8)
Distributable income
51.8
56.6
58.3
2.9
12.4
Number of units ('m end of period)
2,265 2,498 2,502
0.2
10.5
DPU (SGD-cts)
2.29
2.27
2.33
2.7
1.7
NAV
2.05
2.07
2.06
(0.6)
Payout ratio (%)
109.5 109.7 101.7 (7.9)
NPI margin (%)
61.1
Gains from revaluation/financial derivatives
Attributable to non-controlling interest
Capital distribution (Chijmes divestment)
67.7
68.2
0.5
Due to completion of Suntec City Mall Phase 2 AEI Lower mainly due to plant & equipment written off in the corresponding period as a result of AEI.
Higher due to a strategic advisor performance fee payable to a related company of the manager
Lower due to interest coupon received for 177 Pacific Highway and lower interest costs resulting from the early repayment of loans in the previous quarter.
0.1 (7.8) 7.1
Source: OSK-DMG, Company data
See important disclosures at the end of this report
2
Suntec REIT (SUN SP) 22 October 2014 Figure 2: Summary of Suntec's 9M14 results 9M13 9M14 %Change DMG FY14F % of FY14F Comments Gross revenue
162.5
205.6
26.5
297.8
69.0
Higher due to opening of Suntec Singapore following AEI.
Operating expenses
(63.6)
(66.9)
5.3
(106.8)
62.7
Higher due to higher property management fees and property tax following the AEI.
NPI
98.9
138.6
40.2
191.1
72.6
Other income
14.5
14.4
(0.2)
10.0
144.3
Manager's fees
(29.0)
(32.1)
10.8
(34.5)
93.1
Trustee fees
(2.3)
(18.5)
nm
(3.0)
nm
Other expenses
(10.8)
(10.7)
(0.2)
(9.3)
115.6
Net income before financing cost & tax
71.3
91.7
28.6
154.3
59.4
Net financing costs
(41.5)
(33.7)
(18.9)
(44.8)
75.2
EBT
29.8
58.0
94.9
109.5
53.0
Share of profit of jointly controlled entities
18.3
17.5
(4.2)
61.1
28.6
Gains from revaluation/financial derivatives
85.3
27.1
(68.3)
57.4
47.2
133.4
102.6
(23.1)
228.1
45.0
5.7
(4.8)
nm
(1.1)
432.6
Total return before tax Tax Total return - reported
139.1
97.8
(29.6)
227.0
43.1
Attributable to unitholders
123.9
101.7
(17.9)
210.8
48.2
Attributable to non-controlling interest
15.2
(3.9)
nm
16.2
nm
Total return (ex exceptionals)
53.8
70.8
31.6
169.5
41.7
Net income before share of jointly controlled entity
29.8
58.0
94.9
109.5
53.0
Add-back: Non tax deductibles
108.2
101.7
(6.0)
118.7
85.7
Income available for distribution
138.0
159.7
15.8
228.2
70.0
15.0
6.0
(60.0)
0.0
nm
Distributable income
153.0
165.7
8.3
228.2
72.6
Number of units ('m end of period)
Capital distribution (Chijmes divestment)
2,265
2,502
10.5
2,499
100.1
DPU (SGD-cts)
6.77
6.82
0.8
9.08
75.1
NAV
2.05
2.06
0.1
2.09
98.6
Payout ratio (%)
110.9
103.8
(7.1)
100.0
NPI margin (%)
60.9
67.4
6.6
64.2
Higher due to a strategic advisor performance fee payable to a related company of the manager
Lower due to interest coupon received for 177 Pacific Highway.
Source: OSK-DMG, Company data
Figure 3: Suntec's DDM valuation DDM
FY12
FY13
FY14F
FY15F
FY16F
Terminal Value
DPU (SGD cts)
9.49
9.33
9.08
9.91
10.31
207.77
Fair value (SGD)
2.00
Current price (SGD)
1.80
Price upside (%)
11.1
Distribution yield (%) Total return (%)
5.0 16.2
Assumptions Risk-free rate (%)
2.5
Beta
0.8
Cost of equity (%)
7.0
Terminal growth (%)
2
Source: DMG-OSK
See important disclosures at the end of this report
3
Suntec REIT (SUN SP) 22 October 2014
Financial Exhibits Profit & Loss (SGDm)
Dec-12
Dec-13
Dec-14F
Dec-15F
Total turnover
262
234
298
379
396
Property operating expenses
(98)
(85)
(107)
(137)
(144)
Net property income
163
149
191
242
252
Management fees
(39)
(40)
(34)
(38)
(39)
(4)
(3)
(3)
(4)
Trust expenses Operating EBIT
121
Depreciation of fixed assets
106
(4) 209
-
-
-
123
106
154
200
209
Net income from investments
313
310
119
124
115
50
16
1
3
31
Interest income
(57)
(55)
(45)
(50)
(59)
Pre-tax profit
427
377
228
277
297
Taxation Profit after tax & minorities Reported net profit Adjustment for distributable income Total distributable income
(0)
200
Operating EBITDA Other recurring income
(3)
154
Dec-16F
(2) 425
5
(1)
(1)
(4)
382
227
276
293 293
425
382
227
276
(243)
(161)
(14)
(65)
(65)
182
221
213
211
228
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
121
106
154
200
209
3
0
-
-
(13)
Source: Company data, OSK-DMG
Cash flow (SGDm) Operating profit Depreciation & amortisation Change in working capital
(103)
(127)
(14)
(13)
Other operating cash flow
123
120
17
16
23
Operating cash flow
144
100
157
203
220
Interest received
57
57
45
50
59
Tax paid
(5)
(4)
(1)
(1)
Cash flow from operations
153
Capex
(67)
(189)
Other new investments
147
(117)
76
84
76
64
51
156
(222)
(216)
(245)
(179)
(228)
(249)
(261)
Other investing cash flow Cash flow from investing activities Dividends paid
(213)
(208)
Proceeds from issue of shares
(1)
(5)
Increase in debt
28
338
Other financing cash flow Cash flow from financing activities Cash at beginning of period Total cash generated
201
(4)
195
252
274
(67)
(33)
(230)
(225)
(275)
350
-
8
6
(50)
308
230 (73)
(70)
(74)
(57)
(63)
(256)
51
15
4
104
200
181
181
95
(97) 192
(19)
(0)
11
Forex effects
-
-
(0)
0
0
Implied cash at end of period
200
181
192
190
181
(2)
Source: Company data, OSK-DMG
See important disclosures at the end of this report
4
Suntec REIT (SUN SP) 22 October 2014
Financial Exhibits Balance Sheet (SGDm)
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
200
181
181
192
190
Accounts receivable
5
0
6
8
8
Other current assets
(0)
29
(0)
(0)
Total cash and equivalents
Total current assets
0
205
210
187
200
198
7,549
8,109
8,433
8,819
9,134
2
3
3
3
3
Total non-current assets
7,551
8,112
8,435
8,822
9,137
Total assets
7,756
8,322
8,622
9,022
9,335
682
772
682
682
682
Accounts payable
50
91
54
69
73
Other current liabilities
36
21
20
20
20
767
884
756
771
774
2,161
2,389
2,449
2,776
3,022
43
64
65
65
65
Total non-current liabilities
2,204
2,453
2,513
2,840
3,087
Total liabilities
2,972
3,337
3,269
3,612
3,861
Share capital
4,660
4,844
5,213
5,270
5,333
Shareholders' equity
4,660
4,844
5,213
5,270
5,333
Minority interests
124
141
141
141
141
Other equity
-
0
0
0
0
Total equity
4,784
4,985
5,353
5,410
5,474
Total liabilities & equity
7,756
8,322
8,622
9,022
9,335
Total investments Tangible fixed assets
Short-term debt
Total current liabilities Total long-term debt Other liabilities
Source: Company data, OSK-DMG
Key Ratios (SGD)
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
Revenue growth (%)
(3.1)
(10.6)
27.2
27.2
4.5
Net profit growth (%)
(33.0)
(10.2)
(40.6)
21.7
6.0
EPS growth (%)
(33.7)
(10.9)
(46.3)
20.9
5.3
4.1
3.1
(2.2)
0.4
0.5
162.4
163.2
76.2
72.9
73.9
Return on average assets (%)
5.6
4.8
2.7
3.1
3.2
Return on average equity (%)
9.4
8.0
4.5
5.3
5.5
Net debt to equity (%)
55.3
59.8
55.1
60.3
64.2
DPS
0.08
0.10
0.09
0.08
0.09
Recurrent cash flow per share
0.09
0.07
0.08
0.10
0.11
Bv per share growth (%) Net profit margin (%)
Source: Company data, OSK-DMG
See important disclosures at the end of this report
5
Suntec REIT (SUN SP) 22 October 2014
SWOT Analysis Near-term DPU growth following Suntec City’s SGD410m asset enhancement initiative
Straits Trading Company has a 1.4% stake in Suntec and 20.1% stake in parent ARA. Its influence over Suntec REIT uncertain at this juncture
Beneficiary of rising office rentals
Further yieldaccretive acquisitions Better-thanexpected leases signed at Suntec City Phase 3
Australian portfolio lacking scale, as it has a single asset
P/E (x) vs EPS growth
P/BV (x) vs ROAE
-2%
10
-18%
P/E (x) (lhs)
EPS growth (rhs)
Source: Company data, OSK-DMG
Jan-16
Jan-15
Jan-14
Jan-13
0
-34%
Jan-12
5
-50%
8%
1
7%
1
6%
1
5%
1
4%
1
3%
1
2%
1
1%
1
0%
P/B (x) (lhs)
Jan-16
15
9%
1
Jan-15
14%
10%
1
Jan-14
20
1
Jan-13
30%
Jan-12
25
Return on average equity (rhs)
Source: Company data, OSK-DMG
Company Profile Suntec REIT was established with the objective of investing in income-producing real estate properties which are used primarily for retail and office purposes.
See important disclosures at the end of this report
6
Suntec REIT (SUN SP) 22 October 2014
Recommendation Chart Price Close 1.78
1.80
1.80
2.10 2.10 2.10
1.51
1.52
1.51
1.74
1.90
1.72
1.76
1.56
1.71
Recommendations & Target Price
na
2.10
1.70 1.50 1.30 1.10 Buy 0.90 Oct-09
Neutral
Jan-11
Sell
Trading Buy
May-12
Take Prof it
Not Rated
Aug-13
Source: OSK-DMG, Bloomberg Date
Recommendation
2013-07-22
Buy
Target Price Price 1.78
1.57
2013-05-20
Neutral
2.10
1.90
2013-04-26
Neutral
2.10
1.97
2013-04-08
Buy
2.10
1.89
2013-01-23
Neutral
1.80
1.72
2013-01-09
Buy
1.80
1.70
2012-12-03
Buy
1.80
1.60
2012-10-29
Buy
1.80
1.63
2012-07-19
Neutral
1.51
1.47
2012-06-21
Buy
1.52
1.33
Source : OSK-DMG, Bloomberg
See important disclosures at the end of this report
7
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