Daiwa analyst: David Lum
What's the impact Suntec announced its 4Q14 results on 22 January. The DPU of 2.577¢ was 6% higher than our forecast. The positive variance was due to a distribution of SGD4m from capital (we were not expecting any).
Marina Bay Financial Centre is among the assets of Suntec Reit. Photo: CompanySince 1Q13, management has used capital (from divestment gains) to stabilise the DPU during the high-profile SGD230m refurbishment of Suntec City. The lower-than-expected revenue was due to the delayed opening of the final phase 3 of the refurbishment and lower-thanexpected revenue from the convention-centre business. Management expects phase 3 to be completed soon (in 1Q15). It appears that the refurbishment has hit a rough patch lately, with preleasing for phase 3 only reaching 70% as at end-4Q14 (a slight improvement over the 60% in the previous quarter).
Rents also appear to be deteriorating as the overall committed monthly passing rent as at end-2014 of SGD12.27/sq ft is lower than the committed passing rent for phases 1 & 2 of SGD12.59/sq ft in the previous quarter. The trend is disappointing since we were expecting rents for phase 3 to be the highest of any phase.
We attribute Suntec units’ strong performance since 2014 to the robust office leasing market and steady progress of the refurbished retail space at Suntec City. However, these 2 factors could emerge as risks in the quarters ahead if office spot rents suddenly lose momentum, or if the committed passing rent for the Suntec City refurbishment continues to slide.
After incorporating the 4Q14 results, we lower our DPU forecasts by 4.3- 8.5% for 2015-16 and introduce our 2017 forecasts. We assume a stabilised passing rent of SGD12.22/sq ft for the refurbished mall (previously SGD12.40/sq ft).
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■ How we differ Our DPU forecasts are higher than those of the Bloomberg consensus, as we expect stronger dividend growth from the convention business.
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