SUNTEC REAL ESTATE INV TRUST (SGX:T82U)
Suntec REIT - Heading Towards Recovery Mode
- Maiden acquisition of London office asset to drive underlying DPU growth; estimated +18% y-o-y in FY21F despite moderating estimates to factor in potential vacancies ahead.
- Suntec REIT's gearing to remain below 45% post the issuance of S$200m perpetual securities.
- Ride the cyclical recovery now that the vaccine is in sight.
- Maintain BUY; raise target price to S$1.85.
Suntec REIT - Investment Thesis
Attractive valuation below -1SD.
- Suntec REIT's share price is trading at an attractive 0.7x P/NAV, below -1SD of its historical mean. At this price, we believe investors have priced in negatives while we see Suntec REIT (SGX:T82U) recovering as the economy reopens.
Recovery with progressive return of office workers.
- As the government continues to progressively return to normalcy, the return of office workers bodes well for Suntec City Mall and its office buildings, resulting in a rebound in operational metrics.
Office building completions will start to contribute from FY20.
- The completion of 9 Penang Rd, 21 Harris and Olderfleet will begin to contribute from FY20 onwards, augmenting a strong rebound in DPUs.
Suntec REIT - Valuation:
- We raised our Suntec REIT's DCF-based target price to S$1.85 from S$1.81 to include the acquisition of Nova Properties in London but moderate our FY21F-FY22F distributable income marginally by 1-2% to factor in potential vacancies ahead with the adoption of flexible work arrangements. Our target price implies 0.87x P/NAV, which is close to its historical mean, and 4% dividend yield.
- See Suntec REIT Share Price; Suntec REIT Target Price; Suntec REIT Analyst Reports; Suntec REIT Dividend History; Suntec REIT Announcements; Suntec REIT Latest News.
Where we differ:
- No equity fund raising at current price. We do not subscribe to the view that Suntec REIT will tap the equity market at current valuations. There are many other funding options to tap (i.e. perpetuals or asset divestments) which should help to alleviate investors’ concerns over time.
Key Risks to Our View:
- Longer-than-expected economic recovery and potential second wave of COVID-19. As Suntec REIT’s portfolio comprises a higher composition of SME tenants, a longer-than-expected economic recovery and potential second wave of COVID-19 could increase risks of early lease terminations and vacancies.
Rachel TAN
DBS Group Research
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Derek TAN
DBS Research
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https://www.dbsvickers.com/
2020-12-10
SGX Stock
Analyst Report
1.85
UP
1.810
