• 3Q18 DPU +0.3% YoY
• Robust office rentals
• Tenants’ sales gathered pace

3Q18 Results Within Our Expectations

Suntec REIT reported its 3Q18 results which met our expectations. Gross revenue declined 2.5% YoY to S$88.8m and NPI fell by a larger magnitude of 11.4% to S$56.5m due largely to lower contribution from 177 Pacific Highway (mainly attributed to AUD weakness) and sinking fund contribution for Suntec City office upgrading works. According to Suntec REIT, the latter has no impact on distributable income, and if we exclude it, NPI would have declined by 3.9% YoY instead.

DPU was stable YoY at 2.491 S cents (+0.3%), but this was because the 2.9% dip in DPU from operations was offset by a 23.8% jump in DPU from capital (arising from a portion of the sale proceeds from the sale of Park Mall previously).

For 9M18, Suntec REIT’s gross revenue was up 1.2% to S$266.9m and this formed 75.7% of our full-year forecast. DPU was flat at 7.398 S cents and accounted for 73.5% of our FY18 forecast.

A Good Quarter for Office Leasing Momentum

Suntec REIT’s overall portfolio occupancy remained resilient for both its office and retail segments, at 98.9% and 98.1%, respectively (both -0.1 ppt QoQ). Average rents of S$10.16 psf/month and S$9.05 psf/month were secured for its Singapore office portfolio and Suntec City office, representing an increase of 11.0% and 1.1% as compared to 2Q18, respectively.

The strong growth seen for the former implies that rental growth was largely driven by One Raffles Quay (ORQ) and MBFC Towers 1&2 (both onethird interest). This is not surprising given rising demand from diversified sources and tightening supply within the core Grade A CBD market in Singapore.

For Suntec City office, rental reversions were flattish to slightly positive. We have reason to believe that rental reversions were of a larger magnitude for ORQ and MBFC Towers 1&2.

Slightly Lower FV of S$1.83

As for the retail front, Suntec City Mall saw an increase in footfall and tenants’ sales psf by 5.5% YoY and 5.4% YoY, respectively, for 9M18 (1H18: footfall +8.5%; tenants’ sales psf +5.0%). After fine-tuning our assumptions, our fair value estimate eases marginally from S$1.84 to S$1.83.

Source: OCBC Research - 25 Oct 2018