Analysts from CGS-CIMB Research and RHB Group Research are positive on Suntec REIT’s move to divest its office strata units and acquisition of a London Grade A office development.
The REIT announced the divestment and acquisition on June 30.
On this, the analysts have maintained their “add” and “buy” calls.
CGS-CIMB analysts Lock Mun Yee and Eing Kar Mei and also upped their target price estimate to $1.79 from $1.76 previously, while RHB analyst Vijay Natarajan have increased his target price to $1.76 from $1.72.
To Lock and Eing, the transactions are in line with Suntec REIT’s active capital management and recycling strategies.
To date, the REIT has divested its property on 9 Penang Road and its office strata space and used the proceeds to invest in higher yielding properties such as The Minster Building in London.
The yield on 9 Penang Road and the office spaces have yields of 3.1% and 3.3% respectively, while the net yield on The Minster Building is 4.5%, note the analysts in a July 1 report.
Following the move, Lock and Eing have increased their distribution per unit (DPU) estimates by 1.3% to 6.1% to account for both divestments and the acquisition.
A faster-than-expected recovery of the REIT’s retail and convention business is expected to be a catalyst for the REIT’s share price, while higher-than-estimated rental waivers are downside risks to the counter, say the CGS-CIMB analysts.
To RHB’s Natarajan, Suntec REIT’s latest move has reaffirmed its “value-unlocking strategy”.
“The healthy premium to latest valuation achieved for its Singapore office assets emphasises to investors the continued positive outlook on the office sector post-Covid-19, and also highlights the undervalued nature of its share price, trading at c.30% discount to book value,” he writes in a July 1 report.
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As at 3.04pm, units in Suntec REIT are trading 1 cent higher or 0.7% up at $1.47, or 0.7 times P/B, according to RHB’s estimates.
Photo: Bloomberg
