Here's the bright spot in Suntec REIT's weakest quarter

Still positive despite NPI dropping 8.9%.

According to OCBC Investment research, despite arguably the weakest quarter in the remaking of Suntec City, Suntec REIT ended 2Q13 on a relatively positive note. 

Both Phase 1 and 2 of the asset enhancement initiatives (AEIs) were executed concurrently, but NPI was only down 8.9% QoQ (-38.5% YoY) to S$28.0m, while distributable income was down 9.5% QoQ (-18.7% YoY) to S$43.1m.

OCBC noted that DPU, on the other hand, was up 0.9% QoQ (-4.7% YoY) to 2.249 S cents, helped by a S$7.8m capital distribution from Chijmes sale proceeds (1Q: S$2.7m).

Here's more:

For 1H13, DPU amounted to 4.477 S cents, down 7.0% YoY and 4.3% HoH, and formed 48.1% of our FY13F DPU. This is broadly in line with our expectations, as the financial performance is likely to improve going forward now that the Phase 1 has become operational in Jun.

Continued strength at office segment. The retail segment contributed ~28% of Suntec REIT’s 2Q gross revenue. This represents a decline from ~36% contribution in 1Q, dragged down partly by a 53.5% YoY drop in retail revenue amid the partial closure of Suntec City Mall (SCM).

In addition, the office segment achieved positive rental reversions, hence driving the office revenue up by 3.2%.

Management updated that only 6.3% of its office leases is to expire in 2013, after signing a total of 198,000sqft of space at an average of S$8.42 psf pm (1Q: S$8.55). As at 30 Jun, both the office and retail (unaffected by AEI) portfolio occupancy rates were maintained at high levels of 99.7% and 99.6% respectively.

This would likely continue to cushion any volatility in its rental income, in our view.