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Suntec REIT - Maybank Kim Eng 2021-06-30: Trading Up Into The UK

SUNTEC REAL ESTATE INV TRUST (SGX:T82U) | SGinvestors.io SUNTEC REAL ESTATE INV TRUST (SGX:T82U)

Suntec REIT - Trading Up Into The UK


Further diversification, Upgrade to HOLD

  • Suntec REIT (SGX:T82U)’s acquisition of the Minister Building in London has further diversified its portfolio into more resilient longer WALE Grade A assets and the UK’s stronger growth market, while a divestment of Suntec office units after 9 Penang Road has helped de-gearing efforts.
  • We expect Suntec REIT's DPUs to rise 3-4% and will update estimates pending deal closure in 3Q21.
  • While its 4%/ 11% underperformance vs peers/ the market year-to-date reflects a weak balance sheet (and its gearing remains high), improving office/retail fundamentals into 2H21, upside from retained capital distributions, and further divestment gains, suggest a more favourable risk-reward, and hence we raise Suntec REIT from Sell to HOLD with a DDM-based target price of S$1.25 (COE: 8.2%, LTG: 1.0%).



Acquires Minister Building in London at 4.5% yield

  • Suntec REIT will acquire The Minister Building, a 999-year leasehold, ~293k sf NLA property in the City of London’s CBD, that offers Grade A office space with ancillary retail. It is 96.7% occupied with a long 12.3-year WALE, supported by a 2-year income guarantee for vacant space and retail leases, and 1- year guarantee for its co-working lease (c.13% of NLA).
  • The agreed value of GBP353.0m (S$667.2m) is 4.6% below valuation and implies a 4.5% NPI yield. We believe this is attractive versus a 4.0% prime yield for City of London assets and 3.75% for those in the West End.


Divests Suntec office at 3.1% yield

  • The divestment of Suntec City office strata units for S$197.0m (S$2,510 psf) at 8.9% above valuation, results in a S$13.9m gain, while implying a 3.1% NPI yield. While this is ~13% below 2020-21 transactions (at S$2,400-3,443 psf), it reflects the lower-floor and portfolio NLA.
  • The deal, which follows the S$295.5m sale of its entire 30% interest in 9 Penang Road (at 5.7% premium to valuation) at a 3.3% exit yield that was announced on 16 Jun, reflects another well-timed capital-recycling initiative in our view.

DPU accretion at 3.6% is attractive






Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2021-06-30
SGX Stock Analyst Report HOLD UPGRADE SELL 1.250 SAME 1.250



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