Suntec – DBSV

Delivering consistently

• 9M DPU 5% higher than our FY12F
  
• Suntec’s retail mall’s AEI (Phase 1) is proceeding at full steam, pre-commitment levels healthy at 71%
  
• Maintain BUY at a higher S$1.70 TP
  

Highlights

Results slightly ahead of our forecast. 3Q12 gross revenue and NPI declined 8% y-o-y and 20% y-o-y respectively to S$62.6m and $38.4m. The drop was largely due to AEI works at Suntec’s retail mall, as well as the income vacuum from the divestment of CHIJMES, which was partly mitigated by higher contributions from ORQ and MBFC Phase 1. Consequently, distributable income came in at S$52.8m translating to a DPU of 2.35 Scts. 9M DPU came in 5% higher than our FY12F but is in line with street estimates.

Our View

Head start in FY13 renewals. Occupancy for its office portfolio held up at 99.9%. The group renewed about c.70,000 sf at a slightly higher monthly rent of S$8.96 psf pm vs S$8.71. For 4Q12, only 38,505 sf NLA (c.1.6% of total) will expire in 2012 with a chunkier 476,560 sf NLA (c.19.7% of total) in FY13. However, the group’s continuous pro-active efforts in forward renewing its leases should help mitigate leasing risk going forward

Suntec’s retail mall Phase 1 AEI going at full steam. As at end 3Q12, almost 50% of the F&B outlets at The Fountain, as well as the Food Republic at Suntec Convention Centre have vacated. Occupancy excluding the AEI works held at 98.6%; we estimate that on a see through basis, occupancy as at end of Sept was closer to c.80%.Meanwhile, the space vacated by Carrefour will be temporarily taken over by Giant from Nov 12 to Feb 13 before it relocates to B1. Pre-commitment of Phase 1 AEI space remained healthy moving up from 58% a quarter ago 71.2%. We estimate that occupancy is likely to trough in the 3Q13 but revenue for the mall should start to see sequential improvement upon the completion of Phase 1 AEI works in 2Q13.

Financial metrics remain healthy. All refinancing has been done for the year with gearing at 37.8%.

Recommendation

Maintain BUY. We continue to like the Suntec REIT for its pro-active leasing strategies and revenue for the mall should start to improve sequentially from 2Q13 onwards post the completion of Phase 1 AEI works. We have nudged up FY12/13F DPU by 4% each to account for better than expected rentals for its offices at Suntec City. We maintain our BUY call at a slightly higher DCF-backed TP of S$1.70.