Suntec – CS

Its office story has been fully priced in

● SUNT is favoured for its exposure to the rising office market given that 87% of its office leases are due for renewal in FY07-09, of which close to 91% of leases up for renewal are paying ~S$4.10psf against the recently achieved S$6.50 – 8.00psf.

● SUNT purchased 2.5% of its 1.05mn sq ft of Suntec office strata unit acquisition target at a 5% property yield. In our forecasts, we have assumed the entire 1.05mn sq ft to be purchased by end-FY2010.

● The first instalment of 34.5mn of the total 207mn deferred units, part of its purchase settlement at IPO, is due in June 2008. As the deferred units are not subject to any lockup period, there could potentially be a share overhang. Including the deferred units, SUNT’ DPU yields are lower at 3.7-4.4% versus the 4.3-4.8%.

● Our new target price of S$1.81 is based on a lower FY07-09 average required yield of 4.2%, and is supported by our DCFvalued NAV of S$1.74 or S$1.55 on a fully diluted basis. Downgrade to a NEUTRAL from Outperform.