Why Suntec REIT is poised for impressive growth in 2014

Earnings to jump to $240-$260m.

In a report, Moody's Investors Service says Suntec Real Estate Investment Trust's EBITDA will increase to SGD200-SGD260 million by the end of this year, and will recover to historical levels of SGD240-SGD260 million in 2014, as the company completes renovations for its largest asset, Suntec City Mall, in Singapore.

"Our expectation that Suntec REIT's EBITDA will improve is based on the higher rents for the section of the mall that has already been renovated, and on the REIT manager's targeting of higher-end fashion retailers for the third and last area of the mall to be renovated and completed at the end of next year," says Jacintha Poh, a Moody's Analyst.

Moody's analysis is contained in its just-released report titled "Suntec REIT's EBITDA Will Recover By 2014 as Mall Renovation Ends," and is co-authored by Poh and Clara Kim, an Associate Analyst.

Suntec REIT hopes to increase overall rents by 25% once all sections of the mall are renovated and open in 2015. Rents for the first part of the mall to be revamped have already risen by 15.7%.

The first renovated section of the mall opened in June with a committed occupancy rate of 99.6% and average monthly rents of SGD13.09 per square foot compared with SGD11.31 in the unrenovated sections.

Moody's expects the second renovated section to attract similar rental rates and for occupancy rates to increase to over 90% at the end of this year from the pre-commitment level of 70.1% at the end of the second quarter.

"Consequently, we expect Suntec REIT's credit metrics to improve in the next 12-18 months, reflecting the recovery of its EBITDA," adds Poh.

Moody's believes Suntec REIT's debt/EBITDA ratio should return to pre-renovation levels of 11.0x in 2015 from 16.0x at end-June.