Higher yield required as less superior to CCT: Weare maintaining our Equal-weight rating on Suntec REITon a lower price target of S$0.68 (from S$0.91). Inaddition to reducing our rental assumptions for its assets,our new price target attempts to capture the risk of ourbear case scenario panning out, as the macroenvironment continues to deteriorate, by assigning a20% probability to our bear case. A base caseDCF-driven NAV suggest a value of S$0.77 for Suntec,on a fully diluted basis. In our view, the risk-rewardoffered by CapitaCommercial Trust, our new sector toppick with 14.5%-13.6% DPU yield, is more attractivethan Suntec’s 13.3%-13.5% yield. We prefer CCT’shigher-quality asset portfolio, leasing track record andbalance sheet, backed by its strong parent, CapitaLand.

Too early to ascertain refinancing risk, as its S$700mdebt refinancing is only due in December 2009.According to management, banks remain keen to workwith Suntec on its refinancing but are reluctant to committo funding rates ahead of time. On a positive note, oureconomics team is currently expecting SIBOR to be0.6% by 2009 year-end and 2.1% by 2010 year-end. Ifrates remain below 1% in 2009, this would be positivefor S-REITs as further increases in required spreadsfrom the current 200-250bp would be cushioned by thelower SIBOR or swap rates. At a current leverage of33%, Suntec has room to absorb a 200bp to 320bp caprate expansion before it hits the 50% and 60% marks.This translates to a 35% to 46% devaluation in its assetportfolio respectively. We believe this buffer is sufficientfor the next 12 months at least.

Sector dependent on macro recovery: The market islikely to remain skeptical on the viability of the S-REITbusiness model given its heavy reliance on credit andwill be keeping a watch on the ability and cost of theS-REIT debt refinancing in 2009. For now, we believeS-REITs are likely to trade in line with the STI Index.