Suntec – Phillip

2QFY10 Results

• 2QFY10 of $62.9 million, net property income of $47.4 million, distributable income of $45.9 million

• 2QFY10 DPU of 2.528 cents

• Stabilization of occupancy and rents

• Maintain Hold, fair value of $1.34

Suntec REIT recorded 2Q10 revenue of $62.9 million (-3.3% y-y, -0.1% q-q), net property income of $47.4 million (-2.8% y-y, -0.8% q-q) and distributable income of $45.9 million (-3.7% y-y, +1.2% q-q). 2Q10 DPU was 2.528 cents (-15.1% y-y, +0.6% q-q). 2Q10 results were pretty much stable from a quarter ago. In fact there were slight improvements in occupancy rates for both the office and retail portfolio. Management shared that it was the practice to negotiate on renewal of leases 6-9 months ahead of expiry and they are now working on FY2011 leases. Park Mall and Chijmes continue to achieve 100% occupancy rates. Management also dispelled the risk of losing Carrefour as an anchor tenant citing that there will be upside potential in rent since the current passing rent is quite low. Overall, the office portfolio has 97.6% occupancy and the retail portfolio has 98.7% occupancy. Reversionary rent for the office portfolio was $7.13, which was down 2.8% from the last quarter, however management explained that it was due to tenants taking larger spaces which would command lower rates.

Suntec REIT has total debt of $1.752 billion. Gearing is 33.6%.

We think management has done a good job in maintaining occupancy for the retail portfolio and improving the occupancy for the office portfolio. Note that office portfolio occupancy improved from 94.8% in 2Q09. Although reversionary rents probably softened in the wake of this, nonetheless leases were secured and mitigated the risk of tenants migration. The opening of the circle line and adjoining stations are expected to increase the footfall to Suntec City and this should boost the attractiveness of the area. The last tranche of the deferred units (34.5 million) will be issued at the end of the year. We are holding our forecasts and projections and maintain our Hold recommendation with fair value of $1.34.