Suntec Reit

Kim Eng on 22 July 2014

• No surprises in 2Q14 with a 0.2 SGD cts DPU top-out.
• Post-AEI, Suntec City average passing rent for Phases 1 and 2 hit SGD12.57 psf/month
• Maintain BUY with an unchanged TP of SGD1.95.

Results in line with expectations
Suntec REIT’s 2Q14/1H14 DPU rose 0.8%/0.4% YoY to 2.266/4.495 SGD cts, which accounted for 26%/51% of our full-year estimate. There was a 0.2 SGD cts DPU top-out in 2Q14. Recall that Suntec received cash proceeds of SGD147m from the sale of Chijmes in 1Q12. Since 1Q13, management has topped up SGD24m. Gearing improved to 35.3% (1Q14: 38.4%) post the SGD350m prepayment of loan facility, funded by the private placement in March. Similar to other S-REITs, the all-in financing cost for Suntec inched up to 2.62% from 2.49% in the quarter before.

Suntec City AEI on track
Suntec City Phase 2 AEI opened on 1 Jun with the combined Phases 1 and 2 achieving 97.6% occupancy and the average passing rent of SGD12.57 psf/month. Phase 3 is on schedule to complete by year-end. At end-June, Suntec City office occupancy rate remained high at 99.4% (1Q14: 98.9%), with leases for the quarter secured at an average rent of SGD8.98 psf/mth (1Q14: SGD8.97 psf/mth). Overall office portfolio occupancy rate stood at 99.7% (1Q14: 99.4%). With 5.6-25% of office leases by NLA expiring each year for the next three years, we remain confident that Suntec’s proactive leasing management will ensure that its office portfolio is fully optimised.
Suntec’s share price has risen 20.5% YTD, making it the top-performing S-REIT among the 32 listed counters. We maintain our BUY recommendation with an unchanged DDM-derived TP of SGD1.95 (cost of equity = 7.0%; Tg = 2%).