Analysts from CGS-CIMB and UOB Kay Hian remain upbeat on Suntec REIT after it reported 1HFY2021 ended June DPU of 4.154 cents on July 22, in line with their expectations.
See also: Suntec REIT posts 14.6% higher distributable income of $118.2 mil for 1HFY21
UOB Kay Hian has kept its “buy” call for the counter with a higher target price of $1.78, up from $1.72 previously, while CGS-CIMB has kept its “add” call and target price of $1.79 unchanged.
UOB Kay Hian analyst Jonathan Koh’s higher target price reflects the REIT’s acquisition of The Minister Building, an office building in London for GBP353 million ($667.2 million). The building has a committed occupancy of 96.7% with a weighted average lease to expiry for 12.3 years.
The higher target price also takes into account Suntec REIT’s divestment of 78,491 square feet of strata units at Suntec City Office for $197 million, with an exit yield of 3.1% and net gain of $13.9 million.
Factoring the two DPU-accretive transactions, Koh has raised his FY2022 DPU forecasts by 3.9%.
For the REIT’s 1HFY2021 performance, Koh notes it was predominantly driven by its office portfolio. Looking ahead, he highlights management’s guidance of positive rental reversion for Suntec City Office in 2021. “Revenue from Singapore office should remain stable due to the past 12 consecutive quarters of positive rental reversion,” Koh says.
For Suntec City Mall, while negative rental reversion is expected to persist till 1H2022, Koh believes as more employees return to work at offices, shopper traffic and tenant sales should improve. He points out that Phase 2 (Heightened Alert) has not affected occupancy, which is on track for recovery to 95% by the year-end.
Meanwhile, CGS-CIMB analysts Lock Mun Yee and Eing Kar Mei have kept their DPU forecasts unchanged. “At 5.7% 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 say.
Similar to Koh, the analysts see continued improvement in the performance of the REIT’s office portfolio, noting that occupancies at its Singapore, Australia and UK offices remained at 95%, 94% and 100% respectively as of 1H2021. “With c.80% of its Australian dollar income hedged as at 1H2021 and contributions from the newly-acquired The Minster Building to be felt from 2H2021, we anticipate Suntec REIT’s office contributions to improve going forward,” they add.
Units in Suntec REIT closed flat at $1.49 on July 23.
Photo: Bloomberg
