Suntec REIT: Laying refinancing concerns to rest

Successfully refinances $825m loan. Suntec announced it has secured a club loan with 7 banks to refinance the entire $825m maturing this year, underlining the strength of its portfolio and credit standing. The deal comprise of $725m 3-year loan and $100m 7-yr fixed rate loan at a blended all-in interest spread of less than 375bps. With this, the group has no further existing debt due till 2011.

1Q09 results largely in line. Results came in largely in line with expectations as the group renewed 0.3msf of office space and 71000sf of retail space, representing 13% of its portfolio NLA. This was partially offset by lower office occupancy of 97.4%. Office rents achieved average $9.98psf, 11% lower qoq while retail rents remained largely stable. Looking forward, we expect office rents to remain weak owing to slowing demand. The group has a remaining 13% of office and 32% of retail NLA to be renewed in 2009. The office leases are likely to enjoy positive rental reversion, although much smaller than before, as the average level of the expiring contracts are at a low $6.64psf/mth.

Upgrade to Buy. Share price is likely to react positively to the removal of the refinancing overhang. The stock is currently trading at 0.34xP/bk NAV and gearing of 34%. Our 2009/10 DPU projections of 10.7cts and 9.3cts have assumed a 50% drop in peak/trough office rents and a vacancy level of up to 15%. Yield is at an attractive 16.2% and 14%. Upgrade to Buy with TP of $0.82.

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