Year of stability. The main message that emerged from the meetings was that FY2009 would be a stable year. Topline would be supported by positive office rental reversions and stable retail rental receipts. This would more than offset the slight dip in overall occupancy to 97.4%.

Weaker office rents offset by steady retail rents. Office rents are expected to continue sliding but the pace of decline will decelerate as observed in 2Q09 vs 1Q09. Shadow space at Suntec Office Tower is not as prevalent as some of the nearby buildings as only a third of its tenant mix is from the finance sector. With expiring rents averaging $6.64psf/mth, lease renewals are likely to remain positive in FY09, although at smaller reversion gaps than before. The anticipated opening of 2 new Circle Line MRT stations from mid 2010 is expected to improve Suntec Mall’s accessability. Planned AEI, to be largely funded by the management committee (MCST), will smoothen traffic flow. Interest expense is expected to rise by FY10 when the new refinancing cost kicks in. More importantly, near term debt maturity risks have been removed.

Maintain Buy, TP $0.97. We continue to like Suntec for its healthy balance sheet with gearing of 34%, well spread portfolio and lack of near term refinancing risks. Valuation is inexpensive with DPU yield of 12.1% and 10.4% for FY09 and FY10 respectively, even after assuming a 50% peak/trough decline in office rents and 15% office vacancy level, and P/bk NAV of 0.44x. Our sensitivity analysis indicates that gearing would rise to 45% with a 25% asset devaluation portfolio-wide. The probability of this happening is low, with 40% of its portfolio value exposed to more stable retail assets.