Suntec – CIMB

Limelight stolen by MBFC acquisition

• In line; maintain Outperform. 3Q10 DPU of 2.5 Scts met our expectation but was slightly above consensus, forming 25% of our forecast (9M10 at 77%) and 26% of consensus. The limelight, however, was stolen by the announcement of its acquisition of Marina Bay Financial Centre (MBFC 1). See our separate note “Acquisition of MBFC Phase 1” also released today. We keep our DPU estimates intact. Our DDM-based target price, however, has been raised to S$1.63 (discount rate 8.1%) from S$1.60 as we roll over to end-CY11. Maintain Outperform on further improvements in the retail and office outlook. We see near-term catalysts from more concrete signs of DPU accretion from the latest acquisition.

• 3Q10 NPI grew 7.6% yoy, led mainly by a 2.1% yoy increase in gross revenue on stronger office contributions and a lower property tax. 3Q10 DPU declined 14% vs. a milder 3% decline in distributable income due to deferred units payable to the original vendors of Suntec City.

• Positive office occupancy. Portfolio occupancy continued to strengthen on the back of better office occupancy which mitigated lower retail occupancy in the quarter. Office occupancy was up qoq for the fifth consecutive quarter to 98.5%. Retail occupancy at 97.6% was, however, down 1% pt qoq and 2% pts yoy.

• Improved debt maturity profile. Asset leverage was 32.9% at end-3Q10. In Oct 10, Suntec REIT secured a S$700m term-loan facility, which has been used to prepay a S$575m 3-year loan maturing in FY12 and also to refinance part of a S$400m club loan maturing in FY11. This was secured at a blended all-in interest margin of 1.5%, much lower than its average all-in financing cost of 3.77% as at end-3Q10.

• Positive revaluation of assets. Suntec REIT’s portfolio has been revalued at S$5.3bn (including One Raffles Quay) vs. S$5.2bn in Dec 09, with the revaluation driven mainly by higher valuations for Suntec City (S$3.9bn, retail S$1,844 psf, office S$1,819 psf) and ORQ (S$980m, S$2,200 psf).