Suntec – UOBKH

3Q07: Not Much Good News

NPI increased 4.3% yoy, DPU up 11.9% yoy to 2.1 Scts. Suntec REIT’s Q3 results recorded a gross revenue of S$46.7m, a 6.3% increase yoy, while NPI was only a mere 4.3% yoy increase at S$34.1m. The slight increase in revenue was a result of higher office rental income, partially offset by a S$0.2m (or 0.8%) dip in retail revenue. The committed office occupancy also strengthened to 99.3%. Property expenses were 12.0% higher than 3Q06 as a result of higher maintenance charges for Suntec City, marketing expenses and property taxes. DPU however, improved by 11.9% yoy to 2.1 Scts.

Proposed acquisition of One Raffles Quay. Suntec REIT has entered into a conditional share purchase agreement with Cavell (SPV holding one-third of issued share capital of One Raffles Quay) for the acquisition of One Raffles Quay for S$941.5m. The acquisition is expected to be yield accretive, taking into account potential rental top-up payments of S$103.5m over 54 months. The acquisition is targetted to complete by first quarter of 1Q08, upon which Suntec
REIT’s total portfolio would increase to S$4.8b.

Revise HOLD, fair value at S$2.31. Since our initiation with a HOLD at S$2.09, the share price has declined to the current price of S$1.86, and trading at an attractive yield of 4.41%. We will be revising our call and factor in higher acquisitions to our FY07F forecast of S$4.0b at present.