• Strong contribution from Phase 1 AEI
• Recent acquisition to boost earnings
• Expect continued improvement ahead

Significant recovery post Phase 1 AEI

Suntec REIT’s 4Q13 results exceeded both market and our expectations. NPI came in at S$49.8m, representing a 62.9% jump YoY, due to the opening of Phase 1 retail space of Suntec City Mall (SCM) and Suntec Singapore post AEI. Distributable income from operations also saw a 3.4% increase YoY to S$54.2m. Amid the recovery in performance, management utilized a smaller amount of S$4.0m from CHIJMES sale proceeds for capital distribution (3Q13: S$4.5m, FY13: S$19.0m). Nevertheless, this helped to boost the quarterly DPU up by 10.1% YoY to 2.562 S cents. As such, FY13 DPU amounted to 9.328 S cents, just a tad lower than FY12 DPU of 9.49 S cents but ahead of both ours and consensus forecast of 9.1 S cents.

Continued improvement in operational metrics

Contribution from the retail segment continued to climb, reaching 39% of gross revenue in 4Q13 versus 34% seen a quarter ago. However, the retail revenue was still 10.2% lower YoY due to the ongoing AEI of Phase 2 SCM. Suntec Singapore, we note, contributed S$18.2m from just S$0.5m in 4Q12. In addition, office segment registered a sustained growth of 3.8% YoY due to positive rental reversions, consistent with our positive view on the office market. Notably, rental rate for leases secured at Suntec City Office again improved QoQ at S$8.65 psf pm (3Q: S$8.55). Going forward, we understand that management will continue to focus on forward renewal of its office leases. With only 12.5% of its office leases due to expire in 2014, we thus believe the office segment will remain robust.

Maintain BUY

Suntec REIT also updated that Phase 2 AEI is on track for completion in 1Q14, and that pre-commitment for the retail space has reached 97.0%, up from 83.7% in 3Q. While bottomline may experience a dip in 1Q as Phase 3 tenants vacate for the last phase of AEI, we continue to be overall positive on its longer-term potential, arising from 1) strong rental uplift at Suntec City, 2) earnings accretion from 177-199 Pacific Highway acquisition and 3) potential interest savings post refinancing of its S$773.5m club loan due in 2014. We maintain BUY with unchanged fair value of S$1.90 on Suntec REIT.

Source: OCBC Research - 24 Jan 2014