Suntec – DBS

Treading in line

At a Glance
• 4Q DPU of 2.88 Scts in line with expectations
• DPU +5% on higher occupancy and rental assumptions, lower interest costs
• Maintain BUY, TP S$1.47

Comment on Results
4Q09 DPU of 2.88 Scts in line. Revenues of S$61.8m (-2.7%,flat qoq) was largely due to lower retail revenue in 4Q09. Net property income of S$47.2m (-1.4%,flat qoq) declined by a smaller extent
due to lower property tax expenses. Distributable income of S$47.8m (+8% yoy, 0% qoq) translated to a DPU of 2.88 Scts. Portfolio was revalued down by 3% to S$150m leading to gearing to inch up to 33%.

Office outlook remains weak. While Suntec’s office portfolio occupancy strengthened slightly to 95.3%, average renewal rents continued to dip, albeit at a slower pace. As at 4Q09, leases were secured at a rate of S$7.11 psf pm (-37% yoy, -2.6% qoq) and are expected to continue to weaken in 2010 due to the increasingly competitive office leasing environment. In FY10F, Suntec will be renewing c0.37m sqft of office space, representing c20% of its total office portfolio NLA.

Retail revenues are growing steadily. We expect retail revenues to grow steadily, with the buzz generated at the Marina Bay area post the completion of Marina Bay Sands (MBS) and completion of 2 MRT stations nearby. Its portfolio is mostly targeted at the mid-end consumer market and will complement the higher end retail option in MBS. In addition, enhancement works at Suntec City will help lift its retail revenues slightly when completed.

Recommendation
Maintain BUY, TP S$1.47. We adjust our office/retail rental and occupancy assumptions (+3 to 5%) on improved outlook and lower interest costs (-20bps) assumptions. Maintain BUY, TP S$1.47 based
on DCF, which reflects a prospective yield of 6.7-6.9%.