Left Brain Right B - the DBS Vickers Securities Equities Research

Regional Equity Strategy 4Q 2009
Suntec REIT
Bloomberg: SUN SP | Reuters: SUNT.SI
BUY S$1.12 STI : 2,672.60
Price Target : 12-Month S$ 1.23
Potential Catalyst: Faster recovery of the office sector
Analyst
MunYee LOCK +65 6398 7972
munyee@dbsvickers.com
More room to shine
• Portfolio diversity offers resilience
• Balancing weaker office rents with steadier retail
rents
• BUY with TP of $1.23
Price Relative
2.20
2.00
1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
S$
2005 2006 2007 2008 2009
Forecasts and Valuation
Suntec REIT (LHS) Relative STI INDEX (RHS)
Relative Index
FY Dec (S$ m) 2008A 2009F 2010F 2011F
Gross Revenue 294 233 231 232
Net Property Inc 220 172 169 170
Total Return (88) 122 101 102
Distribution Inc 201 167 145 145
EPU (S cts) 15.4 7.8 6.2 6.0
EPU Gth (%) 140 (49) (21) (4)
DPU (S cts) 13.0 10.6 8.7 8.4
DPU Gth (%) 60 (18) (18) (3)
NAV per shr (S cts) 197.7 204.5 203.5 200.3
PE (X) 7.3 14.3 18.0 18.6
Distribution Yield (%) 11.6 9.5 7.8 7.5
P/NAV (x) 0.6 0.5 0.6 0.6
Aggregate Leverage (%) 34.7 35.0 35.0 35.2
ROAE (%) 6.5 3.5 2.9 2.9
218
198
178
158
138
118
98
78
58
Diversified portfolio. Suntec has a well-entrenched
presence in the 3 core growth corridors of Marina
Centre, Raffles Place and Bras Basah areas. Its diversified
portfolio of 2.9msf of retail and office properties provide
a well balanced exposure to the 2 major property subsectors
while limiting the volatility from the more
commoditised office market.
Weaker office rents offset by steadier retail rents.
Office rents are expected to continue sliding but the
pace of decline is likely to decelerate. With expiring rents
averaging $6.64psf/mth, lease renewals are likely to
remain positive in FY09, although at a smaller reversion
gap than before. The anticipated opening of the 2 Circle
Line MRT stations from mid 2010 is expected to improve
Suntec Mall’s accessability. In addition, opening of the
Marina Bay IR should provide a new potential pool of
shopper traffic.
Maintain BUY, TP $1.23. We continue to like Suntec
for its healthy balance sheet with gearing of 35% and
lack of near term refinancing risks. Valuation is
inexpensive at 7.8% FY10 yield. Our DCF-backed TP of
$1.23, based on WACC of 7.7%, beta 0.97x and
terminal growth of 1.5% offers potential 10% upside
from here. Maintain BUY.
Distn. Inc Chng (%): (1.0) (5.8) (5.3)
Consensus DPU (S cts): 10.4 8.6 7.4
ICB Industry : Financials
ICB Sector: Real Estate Investment Trust
Principal Business: Suntec REIT is has a portfolio of office and retail
properties in Suntec City, Park Mall and Chjimes, managed by ARA
Trust Management Ltd.
Source of all data: Company, DBS Vickers, Bloomberg
At A Glance
Issued Capital (m shrs) 1,629
Mkt. Cap (S$m/US$m) 1,824 / 1,289
Major Shareholders
Asean Investment (%) 5.7
Schroder Investment (%) 4.7
UBS AG (%) 4.5
Free Float (%) 85.1
Avg. Daily Vol.(‘000) 8,566
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Refer to important disclosures at the end of this report
ed: JS / sa: JC