Suntec – CIMB

Suntec REIT’s 2Q09 results exceeded both the Street and our expectations on a stronger topline, better net property income margins, and lower interest expense. Distributable income of S$47.7m (+14% yoy) and DPU of 2.98cts (+7% yoy) form 32% of our full-year forecasts. 1H09 DPU of 5.9cts also exceeded expectations at 64% of our full-year forecast. Office occupancy declined 2.6% pts to 94.8% while retail occupancy was stable at 98.4%. In view of the strong 1H, we have moderated our rental decline assumptions and assumed higher net property income margins. Our DPU forecasts for FY09-11 rise by 8-20%. Our target price rises accordingly to S$1.28 from S$1.07 (discount rate 9.4%), still based on DDM valuation. Maintain Outperform.