Suntec – DBSV

Executing AEI works

At a Glance

• Full year DPU was 7% above our forecast

• Half of office leases expiring this year have been renewed, likely see some positive rental reversion

• AEI at Suntec City commencing in June

• Maintain BUY and S$1.46 TP

Comment on Results

Slightly above expectations. 4Q11 gross revenue and NPI rose by 30.4% and 10.1% yoy to S$80m and S$52m respectively, largely due to the consolidation of revenue from Suntec Singapore. Additional contribution from Marina Bay Financial Centre (MBFC) Phase 1 also helped to lift distributable income by 23.1% to S$55.3m. DPU was 2.479Scts and full year DPU was 7% above our forecast. NAV rose by 10% as the trust took in a revaluation surplus of S$396m.

Office performance on track. The office space vacated by some of the tenants has been largely absorbed, hence pushing up overall portfolio office occupancy by 0.6ppt to 99.2%. On top of that, the trust has further renewed another 62,600 sf of FY12 office leases at an average of S$8.72 psf pm, a tad higher than last quarter’s S$8.41 psf. Hence, we expect to see some positive rental reversion given that some of these leases may have been signed in 2H 09 where monthly rents were S$7.1 –S$7.3 psf. The trust has only another 10.1% of leases in terms of NLA to renew in FY12.

AEI works at Suntec City will kick start in June. While we expect a further drop in occupancy from its current 97.5%, we believe that occupancy should not decline beyond 80% at any point in time as the works would be carried out in phases. Meanwhile, the trust has commenced the marketing of space ahead of CDL’s South Beach project, which is largely retail and hotel space.

Recommendation

Maintain BUY. Suntec offers FY12-13F DPU yields of 7.5%-7.6% and is trading at an undemanding at 0.6 x P/BV. Gearing has fallen from close to 40% a quarter ago to 38.5%. There is also minimum refinancing this year (7% of total debt). Our unchanged DCF-backed TP of S$1.46 offers a total return of 35%.