Suntec shines. Suntec’s FY12 DPU beats street estimates of 9.40 SG-cts with an upbeat payout of 9.49 SG-cts, without making any DPU top-ups in 2012 using its Chijmes divestment proceeds. FY12 revenue at SGD262m was 102% of ours and 96% of consensus estimate. 4QFY12 revenue at SGD55m was 22% of ours and 20% of consensus estimate. FY12 DPU at 9.49 SG-cts was 99% of ours and 101% of consensus estimates. 4QFY12 DPU at 2.326 SG-cts was 24% of ours and 25% of consensus estimates. Aggregate leverage inched down to 38.3% from 39.5% last quarter, largely following revaluation gains. Net financing costs for 4QFY12 averaged 2.83% (3Q: 2.85%) with an average term of debt of 2.0 years (3Q: 2.2 years).

Portfolio review. As of 31 Dec, Suntec City office remained at full occupancy with leases secured for the quarter at an average rent of SGD8.98 psf/mth (prev. qtr SGD8.96 psf/mth). With less than 23% of office leases NLA expiring per annum for the next three years, we remain positive that Suntec’s proactive leasing management will continue to optimise its office portfolio. In addition, we are heartened that only c22% (by gross rental) of Suntec City office tenants are from the banking, insurance and financial services, which are most susceptible to an economic downturn. Due to phase 1 AEI works, Suntec City Mall occupancy was dragged down to 74%-76% according to our estimate. One Raffles Quay stood at full occupancy, whilst occupancy for the MBFC1 escalated to 99.9% from 99.5%. There was a dip in Park Mall office occupancy from 100% to 94.6% due to one tenant (NUS) vacating ~19k sqft of space. Management has since find new tenants and occupancy stands at ~98% presently.

AEI making good progress. Pre-commitments for Phase 1 leases in 4Q12 hit 83%, and we believe most leases are secured above Suntec’s post-AEI target of SGD12.59 psf/mth. Suntec also reported that 37% of Phase 2 NLA has been pre-committed even before AEI works commenced. We think Phase 2 AEI should commence on time in Mar 2013 and we forecast that the largest dip in mall occupancy should occur in FY13F at ~59%, but this will improve in FY14F to ~70%. Food Republic has reopened at basement 1 and Golden Village will also be introducing a 60k sqft, 11-sceen multiplex in Phase 2 AEI, including aq 3-screen Gold Class.

DPU top-up reserved for FY13. Suntec received ~SGD147m net cash from the sale of Chijmes in 1Q12. We think it will keep the flexibility for DPU top-up in 2013, when its mall occupancy is most affected (FY13 DPU down to 9.2 SG-cts from our forecast). Reiterate BUY and we raise our TP to SGD1.81, as we believe that average passing rents for Suntec City Mall AEI are likely to be secured at SGD13.50 psf/mth, above Suntec’s post-AEI target of SGD12.59 psf/mth.

Source: Maybank Kim Eng Research - 23 Jan 2013