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The Return of The Return of
SUNSUNTECTECKayKay--Ming, Ming, LeeLeeDesmond LimDesmond LimNg Ng QiQi13 Jan 201213 Jan 2012
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Disclaimer
Please note that the information is provided for you by way of information only. Allthe information, report and analysis were and should be taken as having beenprepared for the purpose of general circulation and that none were made with regardto any specific investment objectives, financial situation and particular needs of anyparticular person who may receive the information, report or analysis (includingyourself). Any recommendation or advice that maybe expressed in or inferred fromsuch information, reports or analysis therefore does not take into account and maynot be suitable for your investment objectives, financial situation and particularneeds. You understand that you buy and/or sell and/or take any position in/or on themarket, in any of the stocks, shares, products or instruments etc. based on your owndecision(s). This is regardless of whether the information is analysed or not,regardless of the details or information related to price levels, support/resistancelevels and any information based on technical or fundamental analysis. Youunderstand and accept that nothing told or provided to you whether directly orindirectly is to be a basis for your decision(s) in relation to the market or your tradesor transaction(s). Please see a registered trading representative or financial adviserfor formal advise.
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Contents
Company Profile 1
Key Drivers2
Debt Analysis3
Valuation Model4
Recommendation5
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Suntec REIT Company Profile
� Properties comprises of office & retail space.
1. Suntec City Office &Mall
2. Park Mall
3. ⅓ ORQ
4. ⅓ MBFC Towers ½ & Link Mall
5. 60.8% SuntecSingapore International Convention & Exhibition Centre.
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4
Revenue Breakdown
Source: Company Data
�75% of revenue isgenerated from Suntec City Office & Mall.
�17% of revenue is from ⅓ interest in ORQ & MBFC.
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One-third Interest: ORQ & MBFC
• Long lease expiry profile does not pose any risk till FY2015 & beyond.
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Suntec & ParkMall Asset
• Suntec City generates 87% and ParkMall about 9% of total NPI.• Retail & Office space each contribute about 50% of gross
revenue.
Source: Suntec REIT Q3 2011 Financial Results Presentation
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Suntec City Office Rent & Occupancy
• Occupancy and Rental Rate start to drop towards Q3 2011. (Rent drop ~9.3% QoQ, Occupancy Rate drop to ~98%)
Source: www.sgx.com, suntec reit8
Grade A Office Rent & Space?• Grade A vacancy rate has been trending up (sign of excess
supply) and has reached a high of >15%.
Source: www.ura.gov.sg
%
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Grade A Office Space in Marina Bay
• Office in Marina Bay Area sets to increase at an annual rate of 7~10% pa till 2015.
• This sets a limited upside to office rental.
Source: www.ura.gov.sg10
Grade A Office Rent & Space?
Source: www.straitstimes.com
G steady supply of office spaceG
To keep rental rate of office space at current level
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Suntec Office Rent & Space
• Balance of 12.7% of office leases expiry in FY2012.
Source: Suntec REIT Q3 2011 Financial Results Presentation
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Suntec Office : A summary
Negative:• Grade A vacancy rate has reached a high of >15%, excess
supply.• Grade A office space sets to increase 7~10% pa till 2015.• Government sets to keep office rent at current level.• Suntec office rent has already been adjusted downward by
9.3% in Q3 2011.Expection:• Suntec to be dynamic in adjusting rents to maintain a
occupancy rate of above 90%.• Suntec to aggressively adjust rent to a low of ~S$7.15psf
pm. (Another 15% drop)
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Retail Rent & Space
• Retail rent adjusted -1% QoQ for the last 4 quarters. Is this a concern?
Source: Suntec REIT Financial Results Presentation14
City Area Retail Rent & Space• Retail space vacancy rate & rents look reasonably
healthy. Supply & demand is rather balanced.
Source: www.ura.gov.sg15
Retail Rent & Space
• Retail space is posed to increase ~2%pa through 2015 with city area retail space taking up half of the increase.
• From department of statistics, retail spending remained strong, supported by low unemployment and strong tourist arrivals.
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Retail Asset Enhancement Initiatives
Source: Suntec REIT SYNERGY PRESENTATION - REMAKING OF SUNTEC CITY
• Suntec has initiated on 31-Oct-2011 an asset enhancement to increase its retail presence: The Remaking of Suntec City.
• Capex S$410m, S$230m from SuntecCity Mall & S$180m from SuntecSingapore.
• 4 phased from mid 2012 to 2015.• Retail NLA increased by 14% to ~1m
sqft.
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Retail Asset Enhancement Initiatives• Proposed phasing of works & key features.
1. Proposed duplex stores
1. New cafes & Cineplex2. Decanting-low yielding space relocated to higher yielding areas
1. Proposed duplex stores2. Dining @Sky Garden
1. New Cafes and F&B
Source: Suntec REIT SYNERGY PRESENTATION - REMAKING OF SUNTEC CITY
Retail Asset Enhancement Initiatives
Source: Suntec REIT SYNERGY PRESENTATION - REMAKING OF SUNTEC CITY
• Funding of S$230m capex supported by:• Sale proceeds from divestment of Chijmes• Bank borrowings• Minimal impact on gearing post-AEI. 19
Retail Asset Enhancement Initiatives
Source: Suntec REIT SYNERGY PRESENTATION - REMAKING OF SUNTEC CITY
• NPI increases $22.8M per year after AEI.• This increase is assumed to contribute to NPI at different
phase of the project.
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Suntec Retail : A summary
Negative:• -1% rental correction QoQ for Q1~Q4’2011.Positive:• Vacancy rate & rents look reasonably healthy. Supply &
demand is rather balanced.• Retail space is posed to increase by only ~1%pa through
2015 in city area.• Low unemployment and strong tourist arrivals.• AEI initiatives.
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Valuation Forecast
• Expect Distribution Income to dip as AEI phases in and only recover when phase 1&2 are completed, i.e. towards 2014.
• Assume cost of equity = 9.33% and growth post 2015 = 1%, 12m Fair Value Target Price:S$1.03.
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Peer Comparison
� Comparable yield with average S-REITS
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Debt?
Source: Suntec REIT Q3 2011 Financial Results Presentation
• No major refinancing till 2013.
• Expect Suntec to have no issue in refinancing its debt.
• Concern: High Debt-to-Asset Ratio.
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Risk Factors
�Significant downside risk if execution of AEI is not phased as planned.
�Worst than expected retail vacancy during AEI.
�Further deterioration to office rent and occupancy rate with respect to forecast.
�Significantly changes in gearing due to severe global recession.
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Recommendation
HOLD, Target=$1.03
Negative:
�Strong headwinds expected for office space.
�Occupancy & rents continue to fall for retail space.
�High gearing of ~40%.
Positive:
�Attractive asset enhancement initiatives: $410m major makeover of Suntec City.
�Strategic divestment of CHIJMES.
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Office Rent & Space?
• Strong pipeline of new office spaces.
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Rating Post AEI?
• Moody’s sees no impact on Suntec’s S$410m asset enhancement inititiative.
G outlook remains stable.
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Remaking of Suntec City
G part of the sale proceeds from CHIJMES to mitigate the temporary
dip in DPU.
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