Suntec REIT - RHB Invest 2019-07-29: Enhancing Earnings Quality; Upgrade To BUY

SUNTEC REAL ESTATE INV TRUST (SGX:T82U) | SGinvestors.io 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 | https://www.rhbinvest.com.sg/ 2019-07-29
SGX Stock Analyst Report BUY UPGRADE NEUTRAL 2.08 UP 1.900



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