Suntec – OCBC

POSITIONING WELL FOR GROWTH

• 4Q12 DPU exceeded expectations
  
• Office segment stayed resilient
  
• Good progress on Suntec City AEI
  

4Q12 DPU above expectations

Suntec REIT posted an encouraging set of 4Q12 results last evening. Despite registering a 41.3% YoY decline in NPI to S$30.6m, DPU for the quarter came in at 2.326 S cents, down only 6.2%. This brings the FY12 to 9.49 S cents (-4.5%), ahead of our full year DPU forecast of 9.28 S cents (consensus: 9.4 S cents). Notably, no proceeds from the divestment of Chijmes were needed to achieve the quarterly performance, which in our view reflects the strong execution by management.

Office segment continues to perform

The drop in 4Q NPI was mainly attributable to the closure of Suntec Singapore in Oct 2012 and Suntec City Mall (Phase 1) in Jun for the asset enhancement works (AEI) and the sales of Chijmes. In particular, Suntec Singapore saw a loss of S$10.9m vs. S$5.8m in 4Q11. However, the office segment continued to perform, raking up 11.1% growth in revenue amid positive rental reversions and consistently high occupancy of 99.7% (99.9% in 3Q). This helped to cushion the softness at its retail segment, which experienced a 27.6% decline in revenue.

More details on Suntec City AEI

Suntec REIT also shed more light on the Suntec City AEI, saying that its Phase 1 AEI is on track for completion by 2Q13 and that its 83% of its NLA had been pre-committed (71.2% in 3Q). For the first time, management disclosed that the Phase 2 AEI will commence on Mar and that 37% pre-commitment had already been secured. Based on the timeline, we believe that 2Q may face the largest impact on its rental income, thereby prompting the REIT to utilise Chijmes sales proceeds to mitigate the fall in DPU. We now tweak our model assumptions to factor in the better-than-expected results and a possible S$10m distribution from the divestment proceeds in FY13. Our fair value in turn is raised from S$1.70 to S$1.94. Maintain BUY.