Share Price S$1.56
Target Price S$2.12
Suntec REIT (Suntec) is an office and commercial REIT with stakes in Suntec City Mall, Marina Bay Financial Centre (MBFC), One Raffles Quay and Park Mall.
• Suntec City Mall AEI will improve property income by 33%. Suntec City Mall’s S$410m asset enhancement initiative (AEI) will boost the mall’s retail rentals by 25% and property income by 33% by end-14. Pre-commitments have been strong with Phase 1 of the AEI almost fully taken-up, and 84% take-up for Phase 2, which is due to complete by early-14.
• New avenue of growth in Australia with Suntec REIT’s first crossborder acquisition of a S$482m upcoming office tower in North Sydney. The high NPI yield (6.5%), substantial 76% pre-commitments and rental guarantees will provide a stable and recurrent source of income for Suntec REIT. The REIT’s exposure to Australia following the acquisition remains low at below 6% of total assets.
• Medium/long-term growth drivers include potential acquisition of the Straits Trading Building, arising from the strategic partnership between ARA and Straits Trading, and also redevelopment of Park Mall.
• Valuations are attractive at 0.76x P/B for Suntec, one of the lowest P/B ratios among large-cap REITs. Forward yields of 6.3% are also attractive given that physical office transactions and valuations are offering 3.0-3.5% yields.
• Positive office rental reversions and high office occupancies of 99.8% lend stability to the portfolio. During 3Q13, Suntec renewed 160,000sf of space, down from 198,000sf of renewals in 2Q13, leaving less than 2% of renewals remaining in 2013. Suntec office leases were signed for an average rent of S$8.55psf/month, up 2% qoq.
• Re-iterate BUY on Suntec with a target price of S$2.12 based on DDM (required rate of return: 7.1%, terminal growth: 2.2%).
Publish date: 28/11/13