Nomura: Suntec REIT may fall after surprise CEO change

An entrance to Suntec City mall; taken October 2018.An entrance to Suntec City mall.

Nomura said the market may react negatively on Thursday to Suntec REIT’s surprise move to replace its CEO on Wednesday.

Suntec REIT’s manager, ARA Trust Management (Suntec), said on Wednesday that Chan Kong Leong, age 46, has resigned as CEO and executive director of the manager, effective 31 December.

It tapped Chong Kee Hiong, age 52, as CEO and executive director, effective 1 January 2019, it said, noting Chong’s previous position was CEO at OUE Hospitality REIT Management from June 2013 to July 2018.

Nomura said the news was unexpected.

“Chan took over the CEO position only on 1 January 2017 – in other words, he is being replaced after just two years in the job,” it said in a note on Thursday.

Nomura noted the change came despite Suntec City mall reporting “fairly robust” operating figures over the past two years, with the mall accounting for around 20 percent of Suntec REIT’s attributable net property income.

“Against the backdrop of a challenging retail market in Singapore, Suntec City Mall reported tenant sales growth of 4.8 percent year-on-year in FY17 as well as 5.4 percent year-on-year in the first nine months of 2018 and the market has mostly credited Mr. Chan, a veteran in the retail market, with this creditable performance,” Nomura said.

By contrast, the investment bank noted that Chong’s experience is almost completely in the hospitality market.

But Nomura added that the new CEO may allow the REIT’s manager to lower expectations for distribution per unit (DPU) to a more sustainable level.

“We believe SUN’s manager’s current practice of topping up DPU with distribution from capital to maintain a yearly pay-out of 10 Singapore cents is unsustainable given rising interest expense and a more sustainable level of DPU is closer to 9 Singapore cents on our estimates,” it said.

It rates Suntec REIT at Reduce with S$1.50 target price.

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