Analysts from CGS-CIMB Research and OCBC Investment Research (OIR) are mixed on the recovery of Suntec REIT, with CGS-CIMB analysts Lock Mun Yee and Eing Kar Mei being more positive on the REIT’s prospects.
Lock and Eing have maintained “add” on Suntec REIT as its distribution per unit (DPU) of 2.045 cents for the 1QFY2021 stood within their expectations at 25% of their FY2021 forecast.
The analysts have kept their target price of $1.76 as Suntec’s higher office income helped boost its results from the drag from its retail and convention segments.
The office segment saw a 29.9% y-o-y jump in net property income (NPI) due to the stronger AUD, new contributions from 9 Penang Road, as well as newly acquired or completed properties in Australia and the UK.
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“With minimal expiries of 3.9% and 2.3% of non-Singapore office portfolio net lettable area (NLA) to be re-contracted in 9MFY2021-2022 and over 75% of its AUD income hedged at end-1QFY2021, we anticipate stable income from Suntec REIT’s office portfolio,” write Lock and Eing.
Retail NPI for the 1QFY2021, however, fell 24.1% y-o-y mainly due to lower revenue from Suntec Mall and rental assistance provided to retail tenants at Southgate Complex in Australia.
Rental version in 1QFY2021 averaged around 26.2%, or -16% excluding the mall’s anchor leases.
“Suntec Mall has a remaining 14.3% and 20.7% of leases expiring in 9MFY2021 and FY2022 and we anticipate the negative rent reversion to persist. Suntec REIT is also undertaking a comprehensive business review to identify medium- and long-term opportunities to pivot Suntec Convention’s core business,” add the CGS-CIMB analysts.
On this, the analysts have also kept their DPU estimates for the FY2021 and FY2022 unchanged.
“At 5.3% FY2021 dividend yield, we think Suntec REIT’s current share price has factored in much of the near-term earnings drag and we maintain our ‘add’ call,” they write.
The research team at OCBC, on the other hand, has recommended “hold” on the REIT with a lower fair value estimate of $1.56 from $1.59 previously.
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The REIT’s 1QFY2021 DPU also came in line with the OCBC team’s expectations at 23.9% of its FY2021 estimates, although it expects its retail segment to have an uneven recovery.
The REIT’s convention segment’s performance will continue to be adversely affected by the Covid-19 pandemic, while it expects the REIT’s office portfolio to achieve positive rental reversions, albeit at a smaller pace compared to the FY2020.
“There are also uncertainties over the longer-term impact of work from home trends. In Australia and the UK, Suntec REIT’s office portfolio is expected to be resilient, underpinned by firm occupancy and long WALE, coupled with annual rent escalations in Australia,” the team writes.
The REIT’s gearing stands at 44.4%, which is considered stable but high among the S-REITs sector.
“We maintain our forecasts but raise our risk-free rate assumption from 1.55% to 1.9%,” writes the team.
As at 3.38pm, units in Suntec REIT are trading flat at $1.57.
