Broker's take: Suntec Reit top pick for RHB on attractive valuations, earnings recovery

RHB on Wednesday said Suntec Real Estate Investment Trust (Suntec Reit) remains its preferred pick in the office/retail Reit space due to its attractive valuation and earnings recovery from its recently completed and acquired assets.

The Reit's units are trading at 0.7 time price-to-book value (P/BV), the research team said in a research note. It maintained "buy" on the Reit with an unchanged target price of S$1.79.

Units of Suntec Reit were trading 0.7 per cent or S$0.01 lower at S$1.51 as at 10.41am on Wednesday.

RHB analyst Vijay Natarajan expects distribution per unit (DPU) to rebound by 25 per cent on the year in 2021, driven by full-year contributions from the Reit's recently completed development assets, the absence of rental rebates and uplift from positive rent reversions signed.

"We estimate Suntec Reit will resume its capital top-up with the stabilisation of Covid-19 and have assumed S$10 million in capital top-ups for 2021," he said.

This comes as Singapore's office occupancy remains high at 98.1 per cent in the year to date. About 348,500 square feet of leases were signed, of which around 30 per cent are new leases, RHB said.

While retail performance is improving, RHB expects pressure on occupancy to persist and overall occupancy to remain at about 90 per cent levels. It also estimates rents to remain under pressure with 5-15 per cent negative rent reversions for upcoming leases. Recovery for Suntec Reit's convention wing is projected to come only in 2022.