Suntec REIT's net property income fell 37.4% to S$30.7m

However, distributable income dropped by a more benign rate of 13.3% to S$47.6m. Further aided by a S$2.7m top-up from Chijmes sale proceeds, the distributable amount eased only by 8.4% to S$50.3m.

This translates to a DPU of 2.228 S cents, down 9.2% YoY. We deem the results to be well within expectations, given that the quarterly distribution made up 24-25% of our and consensus FY13F DPU.

Retail segment registered a 38.9% YoY  decrease in revenue as another portion of SCM next to Promenade MRT station was closed in Mar to execute the Phase 2 AEI. We also note that Suntec Singapore made minimal contribution during the quarter.

However, the office segment continued to perform, achieving a 7.6% growth in revenue on the back of positive rental reversions and consistently high occupancy of 99.7% (unchanged QoQ). Management updated that it has signed a total of 185,000 sqft of leases in 1Q, leaving it with only 10.3% of office  leases due to expire in 2013. As such, we expect the segment to continue to exhibit resilience for the rest of FY13.   

Suntec REIT's DPU to dip 5%

Pre-commitments for Suntec City Mall’s (SCM) Phase 1 post-AEI leases hit 83% in 4Q12 and we believe most were secured above the targeted SGD12.59 psf/mth. Suntec also reported that 37% of Phase 2 NLA has been pre-committed.

We noted that Phase 2 AEI for SCM has commenced and the intensity of the refurbishment works could mean that overall AEI works should wrap up as scheduled by 4Q14.

Optimistic on SCM Rental Uplift. We estimate that the average passing rents for SCM post-AEI may be secured at SGD13.50 psf/mth. We think this is still conservative, given that passing rents at nearby Raffles City Mall are contracted at ~SGD18-19 psf/mth.

In addition, the recent AEI at Causeway Point (suburban mall in Woodlands) has managed to uplift its average rent from SGD10.20 psf/mth (pre-AEI) to current SGD13.52 psf/mth, and we expect Suntec to do likewise, if not better, for a Downtown Core mall.

High chance of DPU top-up. Suntec received cash proceeds of ~SGD147m from the sale of Chijmes in 1Q12. We think it will keep the flexibility for DPU top-up in 2013, when its mall occupancy will be most affected (DPU: 9.22 cents in FY13F vs 9.49 cents in FY12).

1Q13/2Q13 quarters will witness the largest occupancy dip and we do not rule out the likelihood of a DPU top-up as early as 1H13.