Suntec REIT - CGS-CIMB Research 2021-06-16: Unlocking Value From 9 Penang Road

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SUNTEC REAL ESTATE INV TRUST (SGX:T82U)

Suntec REIT - Unlocking Value From 9 Penang Road

• Suntec REIT (SGX:T82U) divested its stake in 9 Penang Road at an agreed property value of S$295.5m.
• It will realise a S$66.5m divestment gain; gearing to decline to 42.9%.
• Reiterate ADD call on Suntec REIT with an unchanged DDM-based target price of S$1.76.

Suntec REIT divesting its 30% stake in 9 Penang Road

• Suntec REIT announced it had divested its 30% stake in 9 Penang Road to its existing JV partner, Haiyi Holdings Pte Ltd, at an agreed property value of S$295.5m (100%: S$985m, S$2,468 per sq ft) or at an implied stabilised net yield of 3.3%. The property has a total net lettable area of 399,000 sq ft with a committed occupancy of 98.7% as at Mar 2021. The agreed property value is 5.7% higher than the average May 2021 valuation of S$931.8m and 30.3% higher than the total development cost of S$756m.

Portfolio remains office-centric, post divestment

• The sale is in line with Suntec REIT’s active portfolio management strategy in a bid to improve its financial flexibility.
• Post-sale, Suntec REIT’s AUM will dip slightly to S$11.5bn. Its portfolio will remain largely Singapore-centric, with 75% of its portfolio value located in the country. Its exposure to the more stable office segment is maintained, with office assets making up 77% of AUM and 80% of total income contribution.

Deal will improve financial flexibility and lower gearing

• In terms of financial impact, the deal is expected to be NAV accretive, lifting its end-Dec 2020 BV by 0.1% to S$2.057. Suntec REIT will realise a divestment gain of S$66.5m and net proceeds of S$88.2m from the sale.
• The net divestment proceeds are intended to be used to pare down debt or be redeployed to higher-yielding assets. Assuming the former, gearing is expected to decline by 1.5% to 42.9% (as at Mar 2021) and is likely to trend down further assuming proceeds from the recent S$150m perpetual securities issuance is utilised to further reduce debt, in our view.

Reiterate ADD rating on Suntec REIT

• We leave our FY21-22F DPU estimates for Suntec REIT unchanged and retain our DDM-based target price of S$1.76. We maintain our Add call.
• See
  • Suntec REIT's Share Price,
  • Suntec REIT's Target Price,
  • Suntec REIT's Analyst Reports,
  • Suntec REIT's Dividend History,
  • Suntec REIT's Announcements,
  • Suntec REIT's Latest News.
• Re-rating catalyst: faster-than-expected recovery of its retail and convention business from COVID-19 disruption.
• Downside risk: higher-than-estimated rental waivers to tenants.

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-06-16

SGX Stock Analyst Report ADD MAINTAIN ADD 1.760 SAME 1.760