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DMG & Partners Securities Pte Ltd may have received compensation from the company(s) covered in this report for itscorporate finance or its dealing activities; this report is therefore classified as a non-independent report. Please refer toimportant disclosures at the end of this publication.

See important disclosures at the end of this publication 1See important disclosures at the end of this publication

DMG Research

OSK ResearchOSK ResearchDMG Research

21 June 2012

SINGAPORE EQUITYInvestment Research

DMG & Partners Research Company Update Private Circulation OnlyREIT

TiWee Pang+65 6232 [email protected]

SUNTEC REIT BUY Price S$1.335Previous S$1.510

Target S$1.520

Saving on taxes

Commercial REIT

Portfolio in Singapore comprises of five qualitycommercial buildings in the CBD. Has an AUMof S$7.6b comprising 2.4m sqft office spaceand 1.1m sqft retail space

Stock Profile/Statistics

Bloomberg Ticker SUN SPSTI 2,856Issued Share Capital (m) 2,237Market Capitalisation (S$m) 2,98752 week H | L Price (S$) 1.560 1.050Average Volume (000) 6,429YTD Returns (%) 24.2Net gearing (%) 37.4%Altman Z-Score NAROCE/WACC 0.5Beta (x) 0.93Book Value/share (S) 1.987

Major Shareholders (%)

Suntec City Development 6.23Morgan Stanley 3.95Asean Investment Corp 3.87

Share Performance (%)

Month Absolute Relative1m 2.7 (0.1)3m 6.4 11.36m 23.0 14.012m (9.2) (2.7)

6-month Share Price Performance

0.70

0.80

0.90

1.00

1.10

1.20

1.30

1.40

19-Dec-11 19-Jan-12 19-Feb-12 19-Mar-12 19-Apr-12 19-May-12 19-Jun

Suntec REIT (SUN) recently announced the successful conversion of BFCDevelopment Pte. Ltd. (BFCD) a company which holds Marina Bay FinancialCentre Towers 1 & 2 and the Marina Bay Link Mall, from a private limited company toa limited liability partnership with the name BFC Development LLP. SUN currently

holds one-third interest in the MBFC properties through its interest in one-third of theissued share capital of BFCD. Following the conversion, although SUNs interest willremain unchanged, going forward we expect the trust to save an estimatedannualized tax of S$3.2-3.7m, as BFCD will no longer be subjected to corporateincome tax. We expect this savings in taxes to contribute an additional 0.14S and0.18S to FY12 and FY13 DPU respectively. Based on our DDM valuation (COE:9.5%; TGR:1.5%) we maintain BUY on this counter with a revised TP of S$1.52.SUN is currently trading at 6.0%spread to 10-year bond yield which is 108bps and366bps above its long term (5.0%) and pre-crisis mean spread (2.4%) respectively,our TP of S$1.52 translates to a spread of 5.1% and a potential upside of 13.8%.

Enjoy tax savings by converting to limited liability partnership. By converting toa limited liability partnership (LLP), unitholders of SUN will be able to enjoy tax

transparency on the income it receives from the MBFC properties. This is consistentwith the tax-free income from other properties held directly by most REITs inSingapore.

Possible conversion of ORQ into LLP in the future. Given the success ofconverting BFCD into a LLP, we believe SUN and its partners in One Raffles Quay(ORQ) will move forward to convert their holding company into another LLP.However, as the conversions of private limited companies into LLPs are subjected tothe approval of IRAS on a case by case basis, we currently do not forecast thisfactor into our model. Additionally, even if the conversion is successful, we expect tosee minimal impact on the earnings of FY12.

FYE Dec (S$m) FY10 FY11 FY12F FY13F FY14F

Gross Revenue 249.5 270.3 263.3 267.9 293.2Net Property Income 193.1 193.4 194.5 197.9 216.7Distributable Income 182.5 220.7 219.5 227.7 241.5Consensus DPU (S) 9.5 9.2 9.0 9.3DPU (S) 9.9 9.9 9.8 10.1 10.6% chg YoY 0.7 (1.5) 2.9 5.1Div Yield (%) 7.4 7.4 7.3 7.5 7.9ROE (%) 9.7 14.0 25.5 1.5 9.1ROA (%) 5.8 8.4 17.0 1.0 6.1Interest Cover (x) 2.7 4.5 21.9 4.5 4.7P/E (x) 13.5 13.4 13.6 13.3 12.6P/B (x) 0.7 0.7 0.7 0.6 0.6

Source: Company data and DMG estimates

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Profit And Loss Statem ent


Gross Revenue 249.5 270.3 263.3 273.3 293.2

Property Expenses (56.4) (76.9) (68.8) (71.4) (76.5)

Net Property Income 193.1 193.4 194.5 201.9 216.7

Management Fees (27.9) (36.1) (36.5) (37.4) (39.2)

Trust Expenses (2.7) (5.3) (3.7) (2.6) (2.7)

EBIT 162.5 152.0 154.3 162.0 174.9Interest Income 25.3 23.5 18.5 17.4 14.3

Interest Expense (81.2) (75.3) (84.5) (84.2) (90.1)

Net Income 106.6 100.2 88.3 95.2 99.0

Change in f air value of financial derivative - (5.9) - - -

Change in fair value of investment properties 248.7 396.2 (208.0) (40.5) 186.0

Total Return For The Period 355.3 490.5 (119.6) 54.7 285.1

Non-Tax Deductible/(Non-taxable) Items (172.8) (269.8) 339.1 176.9 (41.6)

Distributable Income 182.5 220.7 219.5 231.6 243.5


Balance Sheet Statement


Trade And Other Receivables 6.7 14.3 10.3 10.2 10.5

Cash And Cash Equivalent 52.5 104.4 140.3 107.5 101.9

Investment Properties 4,452.0 5,098.1 4,869.1 4,984.6 5,221.7

Others 2,140.9 2,299.9 3,748.6 3,811.4 3,699.3

Total Assets 6,652.1 7,516.7 8,768.4 8,913.8 9,033.5

Trade And Other Payables 41.1 80.9 37.7 39.1 41.9

Interest-bearing borrow ings 404.6 200.0 419.3 441.6 422.1

Others 2,221.8 2,689.2 2,461.3 2,587.6 2,477.1

Total Liabilities 2,667.4 2,970.1 2,918.3 3,068.4 2,941.1

Ne t As se ts Attr ibutable To Unit Holde rs 3,984.6 4,546.7 5,850.1 5,845.5 6,092.3

Source: Company data and DMG estimates 0.0 0.0 0.0 0.0 0.0

Cash Flow Stateme nt


Net Operating Cash Flow 206.4 216.7 246.9 268.9 286.7

Net Investing Cash Flow (1,172.7) (5.6) 102.2 (140.6) 165.4

Net Financing Cash Flow 987.6 (159.1) (313.2) (161.1) (457.7)

Net Increase In Cash And Cash Equivalents 21.3 51.9 35.9 (32.8) (5.6)

Opening Cash 31.2 52.5 104.4 140.3 107.5

Ending Cash 52.5 104.4 140.3 107.5 101.9


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DMG & Partners Research Guide to Investment Ratings

Buy: Share price may exceed 10% over the next 12 months

Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain

Neutral: Share price may fall within the range of +/- 10% over the next 12 months

Take Profit: Target price has been attained. Look to accumulate at lower levels

Sell: Share price may fall by more than 10% over the next 12 months

Not Rated: Stock is not within regular research coverage

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This research is issued by DMG & Partners Research Pte Ltd and it is for general distribution only. It does not have any regard to the specificinvestment objectives, financial situation and particular needs of any specific recipient of this research report. You should independently evaluateparticular investments and consult an independent financial adviser before making any investments or entering into any transaction in relation toany securities or investment instruments mentioned in this report.

The information contained herein has been obtained from sources we believed to be reliable but we do not make any representation or warrantynor accept any responsibility or liability as to its accuracy, completeness or correctness. Opinions and views expressed in this report are subject tochange without notice.

This report does not constitute or form part of any offer or solicitation of any offer to buy or sell any securities.

DMG & Partners Research Pte Ltd is a wholly owned subsidiary of DMG & Partners Securities Pte Ltd, a joint venture between OSK InvestmentBank Berhad and Deutsche Asia Pacific Holdings Pte Ltd (a subsidiary of Deutsche Bank Group). DMG & Partners Securities Pte Ltd is a Memberof the Singapore Exchange Securities Trading Limited.

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As of the day before 21 June 2012, DMG & Partners Securities Pte Ltd and its subsidiaries, including DMG & Partners Research Pte Ltd, do nothave proprietary positions in the subject companies, except for:

a) Nilb) Nil

As of the day before 21 June 2012, none of the analysts who covered the stock in this report has an interest in the subject companies covered inthis report, except for:

Analyst Companya) Nilb) Nil

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