Suntec REIT

Still positive despite NPI dropping 8.9%.

According to OCBC Investment research, despite arguably the weakest quarter in the remaking of Suntec City, Suntec REIT ended 2Q13 on a relatively positive note.

Both Phase 1 and 2 of the asset enhancement initiatives (AEIs) were executed concurrently, but NPI was only down 8.9% QoQ (-38.5% YoY) to S$28.0m, while distributable income was down 9.5% QoQ (-18.7% YoY) to S$43.1m.

OCBC noted that DPU, on the other hand, was up 0.9% QoQ (-4.7% YoY) to 2.249 S cents, helped by a S$7.8m capital distribution from Chijmes sale proceeds (1Q: S$2.7m).

Here's more:

For 1H13, DPU amounted to 4.477 S cents, down 7.0% YoY and 4.3% HoH, and formed 48.1% of our FY13F DPU. This is broadly in line with our expectations, as the financial performance is likely to improve going forward now that the Phase 1 has become operational in Jun.

Continued strength at office segment. The retail segment contributed ~28% of Suntec REIT’s 2Q gross revenue. This represents a decline from ~36% contribution in 1Q, dragged down partly by a 53.5% YoY drop in retail revenue amid the partial closure of Suntec City Mall (SCM).

In addition, the office segment achieved positive rental reversions, hence driving the office revenue up by 3.2%.

Management updated that only 6.3% of its office leases is to expire in 2013, after signing a total of 198,000sqft of space at an average of S$8.42 psf pm (1Q: S$8.55). As at 30 Jun, both the office and retail (unaffected by AEI) portfolio occupancy rates were maintained at high levels of 99.7% and 99.6% respectively.

(22-07-2013, 10:19 AM)KopiKat Wrote: Together with the quarterly reports since then, I suppose it'd be possible to make some intelligent guesses and estimates? Am too lazy to do that but am monitoring the quarterly DPU... In terms of affected area, Phase 2 is the largest and slated for completion by Q413. That may be a good indicator on when the DPU will recover more substantially? ie Q114 onwards?

While 380kspft is affected by Phase 2, Phase 1 reported to convert L1/L2 of convention hall to retail. With the completion of Phase 1, it releases 380ksqft of retail space, just nice to cover the lost of rental from Phase 2.

Working out some simple Math, this is what I getting:

- Total Retail Space increase from 855kspft to 980kspft
- Phase 1 increases retail from 193kspft to 380kspft

Which means that Phase 2 & 3 retail actually decrease from 662kspft to 600kspft?

Furthermore, I believe that the retail space in Phase 1 is the most expensive as it is the frontage of the mall. If that is the case, then the rental for Phase 2 and Phase 3 rental will be lower than $13.09?

(22-07-2013, 01:59 PM)NTL Wrote:

(22-07-2013, 10:19 AM)KopiKat Wrote: Together with the quarterly reports since then, I suppose it'd be possible to make some intelligent guesses and estimates? Am too lazy to do that but am monitoring the quarterly DPU... In terms of affected area, Phase 2 is the largest and slated for completion by Q413. That may be a good indicator on when the DPU will recover more substantially? ie Q114 onwards?

While 380kspft is affected by Phase 2, Phase 1 reported to convert L1/L2 of convention hall to retail. With the completion of Phase 1, it releases 380ksqft of retail space, just nice to cover the lost of rental from Phase 2.

Working out some simple Math, this is what I getting:

- Total Retail Space increase from 855kspft to 980kspft
- Phase 1 increases retail from 193kspft to 380kspft

Which means that Phase 2 & 3 retail actually decrease from 662kspft to 600kspft?

Furthermore, I believe that the retail space in Phase 1 is the most expensive as it is the frontage of the mall. If that is the case, then the rental for Phase 2 and Phase 3 rental will be lower than $13.09?

I'm a bit confused. If the affected area in Phase 1 is stated as 193ksf, how can that increase the retail from 193ksf to 380ksf? Here, I'm assuming the affected area in Phase 1 would have already included both the pre-existing areas of retail + L1/L2 convention hall. If my assumption is correct, the total affected area may actually even include common areas such as corridors, toilets,...

Another thing that's giving me a headache and explains why I said I was too lazy to do a more detailed analysis, is this statement from their financials,

Suntec REIT owns Suntec City Mall and certain office units in Suntec Towers One, Two and Three and the whole of Suntec Towers Four and Five, which form part of the integrated commercial development known as “Suntec City”. The property portfolio also comprises Park Mall, 60.8 per cent effective interest in Suntec Singapore International Convention & Exhibition Centre (“Suntec Singapore”), a one-third interest in One Raffles Quay (“ORQ”) and a one-third interest in Marina Bay Financial Centre Towers 1 and 2, and the Marina Bay Link Mall (collectively known as “MBFC Properties”).

If my reading is correct, the bulk of the increase in retail space will be coming from their 60.8% effective interest in Suntec Singapore (converting convention space to retail space). So, altho' their presentations is on the AEI of Suntec City, a more precise analysis will have to involve slightly more complicated math? CAPEX funding is also different for both (see Oct-12 slides).

Lastly, yes, we can conclude that Phase 2 & Phase 3 rental will likely be lower than $13.09 since they did mention that the AEI will increase rental from $10.10 psf pm $12.59 psf pm for the affected areas.

Suntec REIT, BUY S$1.53 m (Upgrade from HOLD) Bloomberg: SUN SP
Nascent shoots of "growth"
Price Target : 12-Month S$ 1.91 (Prev S$ 1.99)
By: DBS Singapore Research Team
LOCK Mun Yee +65 6398 7972

• 2Q13 DPU of 2.249 Scts in line
• Phase 1 of Suntec Mall reopens; positive vibes from mall visit
• Upgrade to BUY, TP S$1.91


DPU of 2.249 Scts in line. Due to AEI works at Suntec Mall (phases 1 and
2), Suntec REIT’s 2Q13 topline and net property income were 34% and 39%
lower y-o-y at S$46.9m and S$28.0m, respectively. This was partly offset by
higher revenue from its office which continues to enjoy high occupancy of
99.7% with leases secured at S$8.42 psf/mth in the quarter. Distributable
income of S$43.1m was boosted by capital top-up of S$7.8m, bringing income
available for distribution to S$52.3m (-4.0% y-o-y), translating to a DPU
of 2.249 Scts. Looking ahead, Suntec REIT is expected to enjoy interest
savings through a new 5-year unsecured facility at an all-in-cost of 1.5%
(vs 2.68% average debt cost). Funds will be used for refinancing near term
debt-and working capital.
Positive vibes from a walk-through of Phase 1 of Suntec Mall. We liked what
we saw at the reopening Phase 1 of Suntec City Mall with 99.6% of space
committed and achieving a passing rent of S$13.09psf/mth. The manager
shared that Phase 2 is 70% pre-committed to date, which we view positively
as it will reduce leasing risks when it reopens towards the end of 2013.
Looking ahead, while we expect some income top-up going into P2 works, we
note that the most intensive phase of the AEI is over. Through careful
planning and execution, the REIT is likely to see stable earnings, without
the need for further substantial top-ups to maintain distributions.
Upgrade to BUY, TP S$1.91. With improved pre-commitments and earnings
visibility going forward , we remain optimistic that the transformation of
Suntec City Mall will have a positive impact on the REIT’s earnings and
capital values in the medium term. Valuations are attractive (0.8x P/BV,
forward yield of c6.0%) and we believe negatives have been priced in. As
such, we upgrade Suntec REIT to a BUY, with revised TP to S$1.91 after
adjusting for higher risk free assumptions.

Looking at this from a different angle, wife of CEO bought (or CEO bought for his wife) 100 lots at 1.81 on 27 May.

CEO's total interest is 675 lots, very high for reit CEO "eating own dog food".
Rare for a reit CEO and potentially a good sign - puts his money where his mouth his, and risks wife nagging him every day.

http://infopub.sgx.com/Apps?A=COW_Corpor...280513.pdf

<not vested>

(22-07-2013, 04:00 PM)KopiKat Wrote:

(22-07-2013, 01:59 PM)NTL Wrote:

(22-07-2013, 10:19 AM)KopiKat Wrote: Together with the quarterly reports since then, I suppose it'd be possible to make some intelligent guesses and estimates? Am too lazy to do that but am monitoring the quarterly DPU... In terms of affected area, Phase 2 is the largest and slated for completion by Q413. That may be a good indicator on when the DPU will recover more substantially? ie Q114 onwards?

While 380kspft is affected by Phase 2, Phase 1 reported to convert L1/L2 of convention hall to retail. With the completion of Phase 1, it releases 380ksqft of retail space, just nice to cover the lost of rental from Phase 2.

Working out some simple Math, this is what I getting:

- Total Retail Space increase from 855kspft to 980kspft
- Phase 1 increases retail from 193kspft to 380kspft

Which means that Phase 2 & 3 retail actually decrease from 662kspft to 600kspft?

Furthermore, I believe that the retail space in Phase 1 is the most expensive as it is the frontage of the mall. If that is the case, then the rental for Phase 2 and Phase 3 rental will be lower than $13.09?

I'm a bit confused. If the affected area in Phase 1 is stated as 193ksf, how can that increase the retail from 193ksf to 380ksf? Here, I'm assuming the affected area in Phase 1 would have already included both the pre-existing areas of retail + L1/L2 convention hall. If my assumption is correct, the total affected area may actually even include common areas such as corridors, toilets,...

Another thing that's giving me a headache and explains why I said I was too lazy to do a more detailed analysis, is this statement from their financials,

Suntec REIT owns Suntec City Mall and certain office units in Suntec Towers One, Two and Three and the whole of Suntec Towers Four and Five, which form part of the integrated commercial development known as “Suntec City”. The property portfolio also comprises Park Mall, 60.8 per cent effective interest in Suntec Singapore International Convention & Exhibition Centre (“Suntec Singapore”), a one-third interest in One Raffles Quay (“ORQ”) and a one-third interest in Marina Bay Financial Centre Towers 1 and 2, and the Marina Bay Link Mall (collectively known as “MBFC Properties”).

If my reading is correct, the bulk of the increase in retail space will be coming from their 60.8% effective interest in Suntec Singapore (converting convention space to retail space). So, altho' their presentations is on the AEI of Suntec City, a more precise analysis will have to involve slightly more complicated math? CAPEX funding is also different for both (see Oct-12 slides).

Lastly, yes, we can conclude that Phase 2 & Phase 3 rental will likely be lower than $13.09 since they did mention that the AEI will increase rental from $10.10 psf pm $12.59 psf pm for the affected areas.

I am getting the numbers from FY12Q1 slides (Page 10 of 14).

"Phase 1 works of some 193,000sf of NLA in the Galleria zone and Fountain Terrace zones will commence in phases from Jun 2012 and complete Phase 1 circa 2Q 2013"

"Phase 1 NLA comprises some 380,000sf when completed"

(22-07-2013, 04:33 PM)NTL Wrote: I am getting the numbers from FY12Q1 slides (Page 10 of 14).

"Phase 1 works of some 193,000sf of NLA in the Galleria zone and Fountain Terrace zones will commence in phases from Jun 2012 and complete Phase 1 circa 2Q 2013"

"Phase 1 NLA comprises some 380,000sf when completed"

Thanks! That also helped to clarify for me that they're referring to NLA for all the Phases.
Still the huge increase in NLA from Phase 1 is coming from L1/L2 conversion, which belongs to Suntec Harmony Pte Ltd, where they have an effective 60.8% stake. Any positive contribution from this Phase 1 from Suntec Harmony will be via their dividend payout. I suppose Harmony will also have to pay down the extra debts incurred from their share of the AEI, so, whether the dividends is increased/reduced depends on the puppet master...

Suntec City reopens after year-long makeover
Offerings in first phase include high street fashion, upmarket Giant mart

The Straits Times - September 13, 2013
By: Cheryl Ong

THE landmark Suntec City Mall reopened yesterday after completion of the first phase of a $410 million facelift that began just over a year ago.

The mall had been partially closed since June last year when owner Suntec Reit started the ambitious revamp that will eventually transform the complex 17 years after it first opened.

The makeover will eventually add about 980,000 sq ft of retail space and offer more than 400 shops and food and beverage outlets and a large cinema - making it the largest mall in the central city area.

Phase one, which has opened just in time for next week's Formula One Grand Prix, has involved adding more high street fashion labels such Uniqlo, H&M and Cotton On, and the upmarket Giant Hyperfresh supermarket - the first in the Marina Bay area.

Phase two of the renovation should be completed by the first quarter of next year and the last phase by the end of next year, said Ms Susan Sim, deputy chief executive of ARA Trust Management (Suntec), which manages the Reit. The next stage will feature more entertainment offerings, including Golden Village, which will build an 11-screen cinema complex.

Ms Sim added that Suntec Reit is in talks to attract luxury brands like Kate Spade and Coach as tenants for the last phase of the revamp. She said the firm was confident the mall will prosper despite the strong presence of shopping centres like CapitaLand's Raffles City and Marina Square, which is also being renovated.

"I think we're different because we are an integrated development," Ms Sim added. "We have five office towers, a big mall, a huge convention centre. This is an entire mall remaking.

"It's about enhancing the hardware, meaning connectivity and integration. When it was built 17 years ago, there wasn't an MRT station, and now there are two MRT stations sitting within the development."

Yesterday's ceremony was held at the mall's Fountain of Wealth and attended by Second Minister for Trade and Industry S. Iswaran, Urban Redevelopment Authority (URA) chief executive Ng Lang, Singapore Tourism Board (STB) chief executive Lionel Yeo and ARA Asset Management chief executive John Lim.

CBRE director of retail services Letty Lee noted yesterday that major fashion brands are setting up shop at the mall because it allows them to tap into the growing residential and tourist population in the area.

"It is also expected to lead the way by synergising with the other malls in the vicinity to carve another full experience shopping precinct other than the traditional Orchard Road market," Ms Lee said.

ocheryl@sph.com.sg

Suntec Singapore has hosted 650,000 visitors since June opening

Suntec REIT announced that its major enhancement of Suntec City has reached a milestone with the opening of Phase 1 and Suntec Singapore.

Management also reported to research firm OCBC that Suntec Singapore has hosted 96 events and 650k visitors since opening in Jun 2013, which for the research firm, is enough to affirm the venue's status as an attractive Meetings, Incentives, Conventions and Exhibitions (MICE) destination.

Suntec Singapore is expected to book a full calendar ahead for 2013 with customers like Spikes Asia, IFLA, etc.

The newly created retail space at Phase 1 now houses ~100 retail outlets and 50 F&B restaurants, including UNIQLO’s largest outlet in Singapore.

"We continue to believe that the outlook and valuation remain attractive for Suntec REIT. Maintain BUY with an unchanged fair value estimate of S$1.80," said OCBC.

Solid execution from the manager.