Suntec REIT reported its 3Q19 results which met our expectations. Gross revenue and NPI grew 3.5% YoY and 3.2% YoY to S$91.9m and S$58.4m, respectively. The main growth driver came from the Suntec City and Retail segments, but partially offset by weaker Convention contribution.

DPU fell 5.1% YoY to 2.365 S cents, but this was due once again to a lower distribution from capital (-38.0% to 0.232 S cents). DPU from operations rose 0.8% YoY to 2.133 S cents.

Committed occupancy for Suntec City Office came in almost full at 99.9% (+0.8 ppt QoQ). Average gross rent also grew marginally from S$8.51 psf/month in 2Q19 to S$8.53 psf/month in 3Q19, as committed rents in 3Q19 came in at S$9.50-11.00 psf/month, versus an average expired rental of S$8.19.

Suntec REIT highlighted that it has achieved six consecutive quarters of positive rental reversions for its Suntec City Office property, while there were also good rent reversions for leases signed at One Raffles Quay and the MBFC Properties in 3Q19.

On the retail front, Suntec City Mall saw a moderation in operating metrics in 3Q19. 9M19 rental reversions were positive at 4.4%, as compared to +5.3% in 1H19. Tenants’ sales psf rose 0.8% in 9M19, softer than the 1.7% growth registered in 1H19. Footfall was stable (+3.8% in 9M19 versus +3.9% in 1H19).

We currently have a BUY rating and S$2.07 fair value on Suntec REIT.

Source: OCBC Research - 23 Oct 2019