Lower retail revenue for 1Q11 drags Suntec’s DPU to 2.388 S-cents

Despite soaring occupancy rates, S-REIT’s gross revenue dropped 2.3% YoY and 0.6% QoQ to S$61mln.

NPI was also down 2.4% YoY and 1.2% oQ to S$46.7mln.

Distributable income was however up 16.5% YoY and 17.6% QoQ to S$52.9m, largely because of the dividend income contribution from MBFC1.

Suntec's retail portfolio occupancy edged up marginally to 98.2% from 98% last quarter and 97.2% a year ago.

Office portfolio occupancy also rose to 99.7%, compared to 98.8% last quarter and 96.9% a year ago.

All properties registered higher occupancy rates, except Chijmes, which saw a drop of 2.2pp YoY and 1.7pp QoQ to 97.8%.

Office revenue contributed 47% of total 1Q11 gross revenue, while retail revenue constituted the rest.

Gross Office revenue was down 1.4% YoY but up 0.7% QoQ at S$28.9m.

In a statement, OCBC Bank said the higher occupancy rates at Suntec City Office has helped to boost the office revenue for 1Q11, although spot rents are still contracted below average passing rents.

Gross retail revenue, however, was down 3% YoY and 1.8% QoQ at S$32.1mln, largely due to lower rental income achieved for Suntec City Mall (dropping 2.24% YoY and QoQ).

According to OCBC, the fall “once again reaffirmed our initial concerns about the looming retail slide for Suntec properties, following the 'rejuvenation of Orchard Road.’”
Despite the bank’s optimism on the overall recovery of the office sector and Suntec City’s office from negative reversion, it continue to have “lingering concerns” about Suntec's retail portfolio.

“[The concerns are] given [as] we do not expect retail rents to pick up as much as office rents, and there may be more "hollowing out" of shoppers' traffic to Orchard road or even suburban malls,” OCBC said.