Suntec Reit - Strains of recession showing.

Suntec REIT reported gross revenue for 1QFY09 of $64.9 million (+16.0% y-o-y), net property income was $49.2 million(+15.4% y-o-y). Distributable income was $46.4 million(+18.2% y-o-y). DPU for the quarter was 2.918 cents (+15.9% y-o-y).Strains of recession showing. Occupancy came off slightly in 1QFY09 with office occupancy of 97.4%(-2.5% y-o-y) and retail occupancy of 98.8(-0.01% y-o-y)%.

Average rent for leases secured in the quarter was also lower at $9.96 vs 4QFY08 average rent of $11.20. Meanwhile, average rent for expiring leases is $6.64 vs 4QFY08 average rent of $5.42. These indicate that while passing rents are playing catch-up to the spot rates, the gap between passing rent and spot rent is also converging much earlier due to falling spot rates. Retail portfolio average rent registered slight increase from $11.02 in 4QFY08 to $11.05 in 1QFY09.

Highlight of the day. Suntec REIT announced refinancing details of its $825 million debt that is maturing this year. $700 million would be refinanced with a 3-year term loan and the other $100 million with a 7-year term loan. All-in interest cost including upfront fees is at a margin of 3.75% on a floating basis. With the refinancing plan in place, the next loan maturity is in 2011 with loan amount of $532.5 million.

The announcement of the refinancing is definitely positive news for Suntec REIT. The ability to secure funding of $825 million at comparatively low interest margin demonstrates the lenders’ confidence in the REIT. Our next concern is the impact of the economy on Suntec REIT. As mentioned earlier, average rents for new leases fell 11% in 1QFY09 from 4QFY08. Approximately 46% of office leases are expiring in 2009 and 2010, which we feel could be subjected to greater rent pressure. We maintain our Hold recommendation with a fair value of $0.69.

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