Suntec REIT - has no near term refinancing concern

Suntec REIT reported gross revenue for 2QFY09 of $64.5 million (+8.9% y-o-y, flat q-o-q)), net property income was $48.7 million(+6.2% y-o-y, flat q-o-q). Distributable income was $47.7 million(+13.5% y-o-y, +2.9% q-o-q). DPU for the quarter was 2.977 cents (+6.3% y-o-y, +2.0% q-o-q).

Office portfolio reversionary rent continues to show a downward trend. It has fallen 38.9% from a year ago at $13.50 to 8.24. Occupancy of the office portfolio has also been sliding down from 1Q08 at 99.8% to 94.8% in 2Q09. These reflect the office sector is still reeling from the effects of recession. The retail portfolio is more resilient with occupancy maintaining above 98%. The office portfolio accounts for 47% of total revenue while the retail portfolio contributes 53%.

As previously announced, Suntec has no near term refinancing concern. It has successfully secure $825 million of term loan in April 2009. The next loan maturity is in 2011 with loan amount of $532.5 million. The current gearing is 34%.

Valuation & recommendation. We believe that demand for office space will take time to pick up following the nation’s exit from recession in the last quarter. We make no changes to our assumptions and have a FY09F DPU forecast of 10.05 cents which translates to a dividend yield of 9.5%. Fair value remains unchanged at $0.94 and retain our Hold recommendation.

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