• 2Q14 DPU up 0.8% YoY
• Good progress on leasing efforts
• Expecting stronger performance

2Q14 results within expectations

Suntec REIT turned in a strong set of 2Q14 results, with NPI and distributable income rising 64.9% and 19.8% YoY to S$46.1m and S$51.6m respectively. The better performance was due to the opening of Suntec Singapore following the completion of Phase 1 asset enhancement initiative (AEI), and was achieved despite the concurrent closure of Phases 2 and 3 during the quarter. DPU came in marginally higher (+0.8% YoY) at 2.266 S cents. However, we note that only S$5.0m capital distribution was made in 2Q, as opposed to S$7.8m a year ago. Excluding the capital payout, DPU would have risen 8.5% YoY. For 1H14, DPU totalled 4.495 S cents, up 0.4% YoY. This constitutes 46.3% of our FY14F DPU, in line with our expectation.

Robust operational performance

Suntec REIT’s office segment continued to gain traction in 2Q, raking 4.7% growth in revenue on the back of positive rental reversions. The Suntec City Office occupancy also inched up 0.5ppt QoQ to 99.4%, while leases secured averaged S$8.98 psf pm versus S$8.97 in 1Q. Management disclosed that it has forward renewed ~94,000sqft of office leases expiring in 2014, leaving only a balance 5.6% of leases due for renewal in 2014. On the retail segment, we note that revenue also improved 19.1% YoY due to the opening of Suntec City Phase 1 retail space. Suntec REIT shared that Phase 2 has opened on 1 Jun, and that the aggregate committed occupancy and passing rent for Phases 1 and 2 stood at 97.6% and S$12.57 psf pm (1Q: S$12.59) respectively. While management is keeping mum on the marketing progress for Phase 3 retail space, it disclosed that it is targeting an entirely new tenant mix such as “accessible luxury brands”.

Maintain BUY

Looking ahead, Suntec REIT remains positive on its office portfolio performance. It also reiterated that the remaking of Suntec City is on track for completion by end-2014, and that the ROI projection of 10.1% remains intact. We now tweak our assumptions to factor in stronger performance upon completion of Suntec City AEI. Consequently, our fair value is raised to S$1.96 from S$1.85 previously. Maintain BUY.

Source: OCBC Research - 23 Jul 2014