• 1Q14 DPU steady at 2.229 S cents
• Strong execution on leasing activities
• Refinancing needs in 2014-15 addressed

Encouraging set of 1Q14 results

Suntec REIT posted a strong recovery in its 1Q14 results, with NPI and distributable income rising 42.7% and 7.0% YoY to S$43.8m and S$50.9m respectively. The increase was due mainly to the opening of Suntec City Phase 1 and a S$1.9m contribution from its recent acquisition in Sydney. DPU was flat YoY at 2.229 S cents. However, we note that no capital distribution was made in 1Q14, as compared to S$2.7m a year ago. Excluding the capital distribution, DPU would have been up 5.7%. We judge the results to be within expectations, as the DPU constitutes ~24% of ours and consensus FY14F DPU.

Leasing activities progressing well

Suntec REIT continued to make significant progress on its lease management. Within the office segment, over 100,000sqft of leases due to expire in 2014 was renewed, leaving only 9.6% of office space due for expiry for the rest of the year. Notably, average secured rents at Suntec City office continued to trend upwards to reach S$8.97 psf pm (4Q13: S$8.65). At Suntec City retail component, management also disclosed that Phase 1 space has achieved 100% committed occupancy. Given the positive response for Phase 2 AEI, Suntec REIT has brought forward ~32,000sqft from Phase 3 and has achieved 95% pre-commitment for the enlarged area. While retail passing rents at the mall eased from S$13.09 to S$12.69 with the inclusion of Phase 2 space (comprises few anchor tenants), we believe the rates would improve with the leasing of Phase 3, which is the crown jewel of the mall. Thus far, construction costs were within budget, with Phase 2 space expected to open shortly and Phase 3 AEI to complete by 4Q14.

Maintain BUY

On its capital management, Suntec REIT announced that it has signed a S$800m fiveyear unsecured loan facility to refinance the outstanding balance of its S$1.1b loan facility due in 2014 and 2015. Together with the Together with the recent private placement to pre-pay its S$350m debt due in 2015, Suntec REIT no longer has any refinancing needs till 2016. Gearing is also expected to drop to 33.9% from 37.3% currently, while average debt term will be extended to 4.2 years. We maintain BUY with unchanged S$1.85 fair value on Suntec REIT.

Source: OCBC Research - 25 Apr 2014