• 4Q15 DPU grew 6.7% YoY
• Downside risks remain
• HOLD with marginally higher FV

4Q15 results ahead of our expectations

Suntec REIT reported 4Q15 gross revenue of S$87.5m, representing an increase of 13.9% YoY. This was driven by the opening of Phase 3 of Suntec City mall following its AEI completion, coupled with better contribution from Suntec Singapore Convention & Exhibition Centre. DPU jumped 6.7% YoY to 2.75 S cents, exceeding our expectations.

However, the beat came largely because of a distribution from capital amounting to S$8.4m, or 0.332 S cents per unit. This was higher than the S$6m and S$4.6m capital distribution declared in 2Q15 and 3Q15, respectively.

For FY15, Suntec REIT’s gross revenue grew 16.7% to S$329.5m, and this was 4.5% higher than our forecast, as we had expected its Park Mall divestment to be completed earlier. DPU increased 6.4% to 10.0 S cents, and was higher than our FY15 projection by 3.1%.

Progress made but headwinds remain

One of the concerns we had was the significant amount of office leases expiring in 2016 for Suntec REIT’s portfolio. We note that progress has been made, as there is now 14.9% (~352.6k sq ft) of its NLA due for renewal this year, versus 21.4% as at 30 Sep 2015. Office leases secured in 4Q15 had an average rent of S$8.86/month, lower than the S$9.21 psf/month committed rents in 3Q15, but management attributed this to the renewal of bigger spaces.

Looking ahead, management expects its office portfolio performance to be stable, although we believe there are downside risks emanating from the subdued macroeconomic environment and large upcoming supply. On the retail front, overall committed passing rent for Suntec City Mall appears to have stabilised at S$12.04 psf/month (flat QoQ), while 98% committed occupancy has been achieved. Nevertheless, Suntec REIT still has to focus on the 27% of its retail NLA which is expiring in 2016.

Maintain HOLD

We make some minor tweaks to our FY16 forecasts, and introduce our FY17 projections. Rolling forward our valuations, we derive a slightly higher fair value estimate of S$1.51 (previously S$1.50). Maintain HOLD as we see limited potential upside at this juncture.

Source: OCBC Research - 27 Jan 2016