Suntec REIT reported its 2Q18 results this morning which met our expectations. Gross revenue rose 3.7% YoY to S$90.5m, while NPI grew 2.2% to S$60.7m.

Growth was driven by higher revenue from Suntec Singapore and an increase in retail revenue from Suntec City mall, but partially offset by weaker office revenue. DPU for the quarter declined slightly by 0.8% YoY to 2.474 S cents despite a 25% bump in distribution from capital of S$10.0m (~0.375 S cents per unit).

For 1H18, Suntec REIT’s NPI improved 2.0% to S$123.7m and formed 49.4% of our FY18 forecast. DPU of 4.907 S cents represented a mild decline of 0.2% and accounted for 48.8% of our full-year forecast. Overall portfolio occupancy remained firm for both its office and retail segments, at 99.0% and 98.2%, respectively.

Average rents of S$9.15 psf/month and S$8.95 psf/month were secured for its Singapore office portfolio and Suntec City office, respectively. According to Suntec REIT, spot rents have continued to improve across all its Singapore office properties.

On the retail front, operating metrics for Suntec City Mall were also solid, with footfall increasing 8.5% YoY and tenants’ sales psf improving 5.0% YoY, as at 30 Jun 2018. We currently have a HOLD rating and S$1.84 fair value on the stock, and will provide more updates after the analyst briefing.

Source: OCBC Research - 25 Jul 2018