• 3Q15 DPU rose 8.3% YoY
• Uncertain leasing outlook
• Some negatives likely priced in

3Q15 results within our expectations

Suntec REIT reported a 20.4% YoY increase in its 3Q15 gross revenue to S$86.1m. This was driven by the opening of Phase 3 of Suntec City mall following the completion of the AEI and better performance from Suntec Singapore. DPU grew 8.3% YoY to 2.522 S cents, of which 0.182 S cents per unit (S$4.6m) was contributed by distribution from capital. Results were within our expectations. On a 9M15 basis, Suntec REIT‟s gross revenue jumped 17.7% to S$242.0m, forming 76.7% of our FY15 forecast. DPU of 7.252 S cents represented a growth of 6.3%, and this constituted 74.8% of our full-year projection.

Leasing challenges remain

Suntec REIT unveiled the official opening of Suntec City yesterday, following the completion of its S$410m AEI which started in Jun 2012. This has resulted in a bump up in the mall‟s NLA from 855,000 sq ft to 960,000 sq ft, with an overall committed occupancy of 96.4%, as at 30 Sep 2015 (+1.1 ppt QoQ). The larger available space has coincided with the soft leasing environment, making rental negotiations more challenging, in our view.

Overall committed passing rent for Suntec City stands at S$12.03 psf per month (on a stabilised basis), which was a dip from the previous quarters (2Q15: S$12.12 psf per month; 1Q15: S$12.15 psf per month; 4Q14: S$12.27 psf per month). Although Suntec REIT has minimal leasing risks for the remainder of FY15 for its office and retail portfolio, the situation is far more uncertain for FY16, as management has to deal with lease expiries totalling 21.4% and 27.7% of its total office and retail NLA, respectively.

Upgrade to HOLD on valuation grounds

Suntec REIT‟s share price has fallen 6.0% since we downgraded the stock to a „Sell‟ on 21 Jul 2015. We believe the market has priced in some of the negatives, and we now see limited downside returns ahead. Hence, we upgrade the stock to HOLD, with an unchanged fair value estimate of S$1.50. Suntec REIT is currently trading at FY15F P/B ratio of 0.77x and offers a distribution yield of 5.9%.

Source: OCBC Research - 23 Oct 2015