Suntec delivers. Suntec’s 2Q13 DPU exceeded our forecast of 2.23 SGcts with an upbeat payout of 2.249 SG-cts. (+0.9%) 2Q13/1H13 DPU at 2.249 SG-cts (+1% QoQ; -5% YoY)/ 4.477 SG-cts (-7% YoY) was 24%/49% of ours and 25%/49% of consensus estimates (in-line). Last quarter included a 0.345 SG-cts DPU top-up (total SGD7.8m) from the sales proceeds of Chijmes for capital distribution. Stripping out the top-ups, 2Q13/1H13 DPU would have been 1.904 SG-cts (-9.7% QoQ; -19% YoY) and 4.012 SG-cts (-17% YoY) respectively. Despite the major closure of Suntec City Mall, management stated that it has paid out only a conservative SGD10.5m from the Chijmes proceeds this far, beating its own expectations. Aggregate leverage inched down to 38% from 38.6% last quarter. Net financing costs for 2Q13 averaged 2.68% (1Q: 2.79%) with an unchanged average term of debt of 2.28 years.

Portfolio review. As of 30 Jun, Suntec City office occupancy remained unchanged at 99.4% with leases secured for the quarter at an average rent of SGD8.42 psf/mth (prev. qtr SGD8.55 psf/mth). It was down because of the lease renewal of a large tenant (~90k sqft). With less than 24% 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. One Raffles Quay’s occupancy stands at 99.8% while MBFC1 and Park Mall stood at full occupancy.

AEI making good progress. Pre-commitments for Phase 1 leases in 2Q13 hit 99.6% (we forecast above 98%), with average passing rent of SGD13.09 psf/mth. Suntec also reported that 70.1% of Phase 2 NLA has been pre-committed (prev. qtr 53%). Some of the brands that have signed up include Factorie, a new-to-market casual youth fashion concept from Australia, VDL, an international cosmetic brand from Korea, making its first foray into Singapore, Bering, Calligaris, Josiah Montessori, Lovisa, School of Music Clef and Toys “R” Us. Additional F&B offerings that will be in Suntec City Mall include Kopitiam, Paradise Dynasty, Pho Hoa, The House of Robert Timms, The Soup Spoon as well as NamNam Noodle Bar and Peperoni Pizzeria from the Les Amis Group.

Reiterate BUY. Our investment thesis on Suntec remains in-tact. In this growth-limited environment, Suntec is one of the very few S-REITs that has a DPU CAGR growth of 4% from 2012-2015 (12.5% over three years), following the rental reversions from the major overhaul at Suntec City. Suntec is now trading at yield spreads of 3.2% and P/B of 0.74x Maintain BUY with an unchanged TP of SGD1.75.

Source: Maybank Kim Eng Research - 22 Jul 2013