1Q14 results in line; No DPU top-up for the first quarter since 4Q12.

Average rent for Phase 1 and 2 AEI hit SGD12.69 psf/mth, above original target of SGD12.59 psf/mth.

Maintain HOLD with a higher DDM-derived TP of SGD1.70.

Results in line with expectations

Suntec REIT’s 1Q14 DPU of 2.23 SGD cts marked a 13% QoQ contraction but flat YoY. The decline was mainly due to the absence of capital distribution from the sales proceeds of Chijmes (additional 0.120 SGD cts in 1Q13 and 0.175 SGD cts in 4Q13) and income loss following the start of Phase 3 AEI at Suntec City. Stripping out the top-up, 1Q14 DPU would have shrunk 6.6% QoQ but up 5.7% YoY. Suntec received cash proceeds of ~SGD147m from the sale of Chijmes in 1Q12. So far, management has topped up SGD19m in FY13 and did not rule out top-ups for the remainder of FY14. A SGD800m loan facility at a margin of 100+bps has been secured, extending its debt maturity to 4.2 years (4Q13: 2.44 years). This means no refinancing need for Suntec until 2016. Following its SGD350m private placement in March last year and loan reduction, gearing slid to 35.1% in 1Q14 from 38.4% in 4Q13.

Suntec City AEI on track

Following the completion of Phase 1 AEI, Suntec achieved 100% occupancy rate (4Q13: 99.6%), while 95% of Phase 2 NLA has been pre-committed (4Q13: 97%). Phase 2 will open in two stages before 31 Jun 2014, with GV cinema to start at the later phase. The combined average rent committed for both phases reached SGD12.69 psf/mth, above management’s original target of SGD12.59 psf/mth. We adjust our FY14E-16E DPU by 1.9-3.4% on revised rental assumptions and interest cost savings. This translates to a three-year FY13-16E CAGR of 3.4%. Maintain HOLD with a higher DDM-derived TP of SGD1.70 (previously SGD1.63).

Source: Maybank Kim Eng Research - 25 Apr 2014