SINGAPORE (April 26): Maybank Kim Eng Research is maintaining its “hold” call on Suntec REIT with an unchanged price target of $1.76, even as the trust registered 2.3% higher distribution per unit (DPU) at 2.425 cents this morning for the first quarter ended March 31.
(See also: Suntec REIT posts 2.3% rise in DPU to 2.425 cents)
Despite acknowledging resilient signing rents, high committed occupancy at the Suntec City Offices, as well as lower exposure to office headwinds, analyst Derrick Heng highlights the implications of a potential conversion of bonds into shares, due to the recent announcement of the change in ownership at ARA asset management.
(See also: Confirmed: John Lim-led consortium to buy out ARA Asset Management in $1.8 bil deal)
Although Maybank has not built in the impact of the potential conversion in their estimates, it projects a potential 4.3% DPU downside should the $300 million of convertible bonds be fully converted, although this also means that aggregate leverage would improve from 37.7% to 34.5%.
The convertible bond holders have until May 15 to exercise their conversion rights.
“Similar to other office REITs, Suntec REIT offers good value with the current unit price implying undemanding $2,065 psf capital value and 4.3% cap rates for its Singapore offices,” says Heng.
Nonetheless, the research house says it prefers CapitaLand Commercial Trust (CCT) for its “cleaner DPU” that is not supported by capital distributions, and rates the trust “buy” at a target price of $1.81.
As at 4.34pm, units of Suntec REIT and CCT are trading at $1.75 and $1.62 respectively.
