Suntec Reit

Suntec Reit: 3Q11 results were inline to above expectations.
Revenue at $68m, +7.4% yoy, +10.8% qoq, driven by consolidation of income from a larger stake in the Suntec convention centre.
Distributable income at $56m, +22% yoy, +0.3% qoq.
DPU was 2.53cts, ~6% ahead of consensus.

Operating data however, showed rents and occupancy weakening. Suntec reported average signing rents of $8.41psf pm (excl leases with rental caps) in 3Q11, -9.4% qoq. This could be attributable partly to the UBS renewal, which could be lower than prevailing market rate due to the large space requirement.
Office occupancy in Suntec Office Tower weakened slightly to 98%, bringing total office portfolio occupancy to 98.6% (from 99.2% in 2Q).
Suntec City mall’s passing rent fell further to $10.10 psf pm in 3Q, from $10.67 psf pm in 2Q. The mall occupancy stayed low at 96.5% as the manager continued to study potential asset enhancement plans for the mall.

StanChart notes Suntec has the highest net gearing of 41% amongst SREITs. Believes
Suntec’s gearing could rise further if capital values decline or if the manager undertakes asset enhancement initiatives (AEI) for Suntec City Mall. Notes, Suntec could sell assets, such as the strata-titled office units in Suntec Office Towers to reduce its gearing, or could raise new equity to reduce gearing.

Street has mixed ratings.
StanChart reiterates Underperform with TP $1.
Nomura maintains Buy with TP $1.64, notes Suntec is currently trading at 0.7x FY12F PB and a 7.9% FY12F DPU yield.
Citi maintains Buy with TP $1.53.