Suntec Reit S 2Q07 distributable income grew 19% yoy and 3.7% qoq to $28m. The results were boosted by healthy organic growth within its flagship assets, contributions from additional Suntec office space and better cost management. Looking ahead, the group should continue to leverage into the rising office leasing market with a sizeable 80% of its office NLA scheduled to be renewed over FY07-09. In addition to a sizeable retail renewal profile, value-add activities at Suntec retail mall should underpin bottomline growth. Maintain Buy with a revised price target of $2.20. This translates to a potential absolute return of 14% over the next 12 months.

Another record quarter. Suntec Reit reported 2Q07 distributable income of $28m, up 19.3% yoy, bringing 1H07 distribution income to $55.1m, an increase of 20.5% over previous period. However, 2Q07 and 1H07 DPU rose a more modest 8.5% and 9.5% to 1.97cts and 3.86cts respectively due to a 9% enlargement in issued units. There was a $613.6m revaluation surplus which lifted book NAV to $1.83.

Strong organic growth. Office revenue accounted for 37% of topline in Q2. This stream of income notched a 23% yoy rise to $17.1m aided by increased occupancy of 99.2% and new contributions from the 30172sf strata title space acquired at Suntec City and higher contracted rental rates. Transacted rents continued to climb to $8.50-9psf/mth compared to the average outgoing levels of $4.60-4.80psf.

Robust lease reversion schedule. Outlook remains positive with 33% and 40% of office NLA to be renewed in FY08 and FY09. This should enable Suntec to leverage into the robust office leasing market. Plans to buy more office strata space at Suntec should deepen the group s exposure to the rising office sector.

Retail income to benefit from AEI. Apart from the renewal of 54% of retail NLA over the next 2-3 years, retail revenue should be lifted by the asset enhancement initiatives such as establishment of a youth and fashion zones at Suntec Mall. An estimated 60-72% of these areas have been pre-committed.

Maintain Buy with revised price target of $2.20. Suntec is currently trading at FY07 and FY08 yields of 4.1% and 4.6%. While Suntec does not have a visible pipeline, near term growth would be underpinned by strong performance of the office leasing market.