Suntec – CIMB

Due for a bounce

Positives were better rental reversions and stronger occupancy from Suntec City offices. An ROI of 10.1% from Suntec City Mall's AEI is within sight, based on >45%secured pre-commitments. Its risk-reward trade-off remains favourable at 0.65x P/BV.

1Q12 DPU matches consensus and our estimates at 28% of FY12. We expect a frontend-loaded year with Suntec City Mall's AEI contributing in 2H12. We factor in GST rebates for ORQ, adjusting our DPU by 1-2%. Maintain Outperform with a higher DDM target (discount rate: 8.1%).

Stronger offices

1Q12 DPU was up 4% yoy on higher contributions from ORQ, MBFC and Park Mall. Positives were slightly better rental reversions at Suntec City offices, aided by low expiring rents for certain leases like IDA's and UBS's. Renewal rents inched up to S$8.79psf (4Q11: S$8.72psf) while occupancy tightened to 99.5% (4Q11: 99.2%). 2012 lease expiries are down to 7.5% by NLA and management is working on those leases due in late 2012 and early 2013. ORQ and MBFC also contributed more yoy. Management is expecting GST returns from ORQ income support in the coming quarters.

AEI on track

Management appears increasingly confident of returns from Suntec City Mall's AEI, guiding that it is on track to hit its ROI target of 10.1%, judging from its >45% of secured pre-commitments. Chijmes' divestment proceeds will be used to mitigate a temporary DPU dip 'if necessary'. Phase 1 of the AEI will involve the closure of 193k sf (23% of Suntec City's retail NLA) in the Galleria zone and Fountain Terrace, with a most intensive phase expected between Oct and Dec 12, before completion in 2Q13. Mall rents and occupancy were stable before the AEI.

Valuations compelling

With limited DPU downside and at 0.65x P/BV, we reckon its risk-reward remains in favour of a positioning for a bottom and successful remake of Suntec City Mall.