SUNTEC REAL ESTATE INV TRUST (SGX:T82U)
Suntec REIT - Enhancing Earnings Quality; Upgrade To BUY
- Upgrade to BUY from Neutral, with new SGD 2.08 Target Price from SGD1.90, 8% upside plus 5% yield, as we expect Suntec REIT's earnings turnaround from flow through of positive rent reversions, completion of three development assets by 1H20, and higher income contribution from latest acquisitions.
- The recent placement exercise also removed an overhang of any imminent fund raising.
- Valuations are attractive with the stock trading at 0.9x P/BV (Office REITs: -1.1x P/BV) and dividend yield of 5.1%.
Suntec REIT's 2Q operational DPU in line.
- Operational DPU rose 1.4% y-o-y, while overall DPU declined 4.6% y-o-y, as Suntec REIT (SGX:T82U) exercised prudence by lowering capital distribution by 35% y-o-y to maintain stable DPU ahead. It still has c.SGD60m of capital gains left from past divestments.
Suntec City office and retail rents to continue uptrend.
- Office leasing picked up pace in 2Q19 with 180,000 sqf of leases signed (~3x more than 1Q19) with rent reversion of +7.9%. With 2H19-2020 expiring rents at
Accretive acquisition of two Australian assets.
- Suntec REIT recently 21 Harris Street (21HS) in Sydney 55 Currie Street in Adelaide escalations private placement proceeds of positive on provide much-needed Australia will account for Suntec REIT focus on term.
Development kick 2H20.
- One of the key earnings has 1H20, and should start organic DPU.
- The office component of 9PR has 5% of its heads. This should contribute to healthy organic DPU growth from 2021, aided by built-in rental escalations for these assets.
DPU and Target Price adjustments.
- Our FY19F-21F DPU are lowered by 2-3%, mainly due to lower capital gains distribution assumed.
- With better earnings clarity, we cut our COE assumptions by 60bps, resulting in a higher Target Price.
Vijay Natarajan
RHB Securities Research
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https://www.rhbinvest.com.sg/
2019-07-29
SGX Stock
Analyst Report
2.08
UP
1.900
