Suntec REIT has completed the issue of convertible bonds to the value of S$250mn to refinance upcoming debt. The bonds will bear an interest rate of 3.25% and a yield to maturity of 4.25%. The bonds are due for expiry in 2013 with a conversion price of S$1.968/share. The proceeds will be used to pay down the S$180mn bridging loan due in April 08 while the balance is intended to be used towards the bridging loan due in Oct 08.

Reduction in fair value estimate
Our FY08 and FY09 net earnings estimates have been reduced (<1%) to account for the marginally increased interest expense (average financing cost at Dec 07 3.13%). We have reduced our DCF derived fair value estimate from S$1.67 to S$1.56 due to dilution when the bonds are converted in 2013.

Debt refinancing in 2008
In addition to the debt refinanced through the convertible bond issuance, Suntec has $490mn of debt due to mature in Oct 08. Of this S$420mn will need to be refinanced (S$70mn paid down from convertible proceeds). Suntec also has short term debts of S$75mn which will need to be refinanced in 2008.

Maintain Neutral
Valuations for the stock remain undemanding however we remain cautious on REITs with sizable near term debt expiry. With no visible catalyst and possible headwinds due to debt renewal we maintain our Neutral rating. Our preferred exposure to the Singapore office market remains CapitaCommercial Trust (CMIAF; B-1-7; S$1.98).