Suntec REIT - Maybank Kim Eng 2016-04-12: Priced In

Suntec REIT - Maybank Kim Eng 2016-04-12: Priced In  SUNTEC REIT SUNTEC REAL ESTATE INV TRUST T82U.SI 

Suntec REIT (SUN SP) - Priced In 


Raise TP on Lower Yield Target; Upgrade to HOLD 

  • We tighten our yield target for Suntec REIT by 75bps to 6.50% and raise our yield-based TP to SGD1.56 from SGD1.40. 
  • Our lower target reflects signs that interest rates will stay low for longer. Singapore’s office sector has just tipped over and we see rents falling into 2018. 
  • But as we believe this has been priced into Suntec REIT, we upgrade it to HOLD from SELL. 
  • Within the office sector, CCT (HOLD, TP SGD1.40) is our preferred pick. 

Stable DPUs 

  • We forecast stable DPUs. Headwinds to office income could be cushioned by the first full year of retail rentals after AEI at its Suntec City mall. 
  • Still, we remain cautious, as: 
    1. Park Mall has been sold and is being redeveloped. Unitholders will assume higher risks from the REIT’s 30% stake in the redevelopment; 
    2. headline distribution of SGD252m in FY15 included SGD19m of capital distribution from its divestment of CHIJMES. With prospects of falling office rents, it may repeat this to hold up headline numbers. While this lends support to DPU, it does not reflect the underlying performance of its properties; and 
    3. it has large exposure to the financial sector. Job growth in the banking, insurance and financial sector remains tepid, which could scale back demand for office space. Suntec REIT had 48% exposure to this sector by office income as of end-2014.



Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-04-12
Maybank Kim Eng SGX Stock Analyst Report HOLD Upgrade SELL 1.56 Up 1.40


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