Suntec REIT - Q3/05 Results

Extract fm Press Release,

Singapore, 26 July 2005 - ARA Trust Management (Suntec) Limited (“ARA Suntec”), the Manager of Suntec REIT, is pleased to announce a higher than forecast income available for distribution to unitholders of S$20.1 million for the period 1 April 2005 to 30 June 2005.

Year-to-date DPU exceeds forecast by 5.2%. Distribution per unit (“DPU”) year-to-date and for the period under review are 3.42 cents and 1.56 cents respectively. This is 5.2% and 5.0% higher than the forecast respectively. Year-to-date, Suntec REIT would have delivered an annualized DPU of 6.11 cents, providing unitholders with a distribution yield of 5.1% based on the closing price of S$1.19 per unit on 25 July 2005.

Mr Yeo See Kiat, Acting CEO of ARA Suntec, said, “Suntec REIT has outperformed DPU forecast again. Our pro-active leasing efforts coupled with a strengthening office market have resulted in committed office occupancy jumping close to 90%. Strong demand for prime office space amidst a tightening supply resulted in an 11.1% increase in achieved office rents compared to forecast for new/renewal leases that came into effect in the last quarter.

On the retail front, Suntec REIT continues to register a double digit growth in retail rents from preceding levels. This provides further evidence of Suntec REIT’s relatively strong organic growth potential. Together with the 1st phase of our asset enhancement plans, our unitholders will be embarking on a rewarding journey aimed at harnessing the potential of the assets. For example, we added 31 pushcarts in the mall last quarter (from 8 pushcarts in the previous quarter) which are expected to generate an additional revenue of over S$1 mil per annum.”

Office Occupancy and Rentals Continue to Rise. Strong demand for office space at Suntec City continued to boost occupancy, from actual occupancy of 75% as at 9 December 2004 (date of listing) to a committed occupancy level of 89.3% as at 30 June 2005. In addition, achieved rental rates rose to S$4.52 psf for new and renewal leases that came into effect during the period under review. This is 11.1% higher than the average forecast rental rate of S$4.076 for FY2005. With limited supply of quality office space over the next 3 years and an expected increase in demand for office space in tandem with sustained economic growth, occupancy and rentals are expected to continue on the upward trend. In addition, the strong interest in the new Business Financial Centre site highlights the renewed investor confidence in the office sector.

Rising Retail Rents & High Occupancy. Suntec City Mall continues to record double digit growth in rental rates from preceding levels for leases replaced/renewed during the reporting period. On a year-to-date basis, rental rates have increased by an average of 12.5% from preceding levels. This is significantly higher than the island wide average increase of a low single digit – a reflection of Suntec City Mall’s relatively strong organic growth potential. The retail sector is expected to remain robust, bolstered by positive economic growth, limited supply of prime retail space, and the government’s efforts to promote the tourism industry. The retail committed occupancy level as at 30 June 2005 has strengthened to 96.2% as at 30 June 2005.

Revenue & Asset Enhancement Plans on Track. In the last quarter, the Manager commissioned AC Nielsen to carry out a comprehensive consumer survey. The survey was completed in June and the findings were used to evaluate, affirm and fine-tune its strategy on the asset enhancement plans. In the period under review, the Manager also embarked on the re-positioning of a 39,317 sq ft area of retail space area on the 3rd floor of the Tropics zone
into a children and infant lifestyle specialty zone called Happy Kidz.

Renovation works is in progress with a formal launch expected before Christmas. The new zone is expected to generate an additional revenue of ~S$3 mil per annum. Several new zones have also been identified and would be implemented over a 1-2 year period. These include a proposed new Youth zone, a proposed new Food Hall and a proposed new Digital World zone. These initiatives are expected to increase existing revenue from these areas by more than 50% after the enhancements.

The Manager is pro-active in identifying new sources of revenue through various initiatives and asset enhancement plans. In the period under review, the advertising & promotions revenue increased by more than 30% and the pushcart revenue jumped by more than two folds.

Acquisition strategies to deliver yield accretive acquisitions. The Manager continues to pro-actively seek yield accretive acquisition targets, focusing on opportunities in the new growth corridors surrounding the Marina Bay Enclave and the Civic & Cultural District.

Another area of focus is the strengthening office sector where the Manager believes there will be significant growth from rising rental rates and capital values.

On an opportunistic basis, the Manager also seeks to participate in the robust retail market, or acquire assets where there are potential for growth. Mr Yeo commented, “The developments relating to the new Business Financial Centre will not only shift focus to the proposed new downtown but will also be a catalyst for urban renewal in the existing Central Business District. We are excited about the proposed acquisitions for Park Mall and CDL properties as the properties provide both the strategic fit in terms of being largely located in the growth corridors and additional exposure to the strengthening office sector.”

My Comments - The results is just below my own forecast at stockpick. Was expecting an annualised yield of 5.3~5.5% @ $1.18. But, the payment of a quarterly dividend was unexpected. Provided brief on their plans of the new acquisitions fm CDL & Wing Tai but no info on the financial impact. Most likely, they'll do that in their prospectus when they issue new shares to fund the acquisitions.

If investors are rational, I expect Suntec to trade at least aro' $1.20 (5.2% yield) to $1.25 (5% yield) on 27-Jul when mkt opens. If they are very very rational, then higher than $1.25 (4.8% @ $1.30 ; 4.5% @ $1.39).

Announcements dated 26-Jul,

• Financial Statements
• Press Release
• Presentation Part 3 : Plans for CDL & Wing Tai Acquisitions
• Presentation Part 2 : Plans for Suntec City
• Presentation Part 1 : Results & Plans for Suntec City

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Disclaimer : The above is just my opinion. Do not rely on it for your investment decisions