Brokers' take: Analysts mixed on Suntec Reit as Q1 DPU rises 16.9%
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Janice Lim
ANALYSTS are mixed on Suntec real estate investment trust (Reit) after it posted a 16.9 per cent increase in distribution per unit (DPU) to S$0.02391 for its first quarter ending Mar 31, 2022, from S$0.02045 a year ago.
CGS-CIMB downgraded the Reit's rating to "hold" even as it kept its target price of S$1.79, derived from the dividend discount model, said analyst Lock Mun Yee in a report on Tuesday (Apr 26). This reflects a potential downside of 2.9 per cent from its last closing price of S$1.84.
The downgrading comes as CGS-CIMB lowered the estimated amount of dividends unitholders would receive by between 1.84 per cent and 4.27 per cent for the financial years 2022 to 2024.
The 16.9 per cent increase in DPU came in lower than CGS-CIMB's projection of 22 per cent for FY2022.
However, in a research report on the same day, Maybank analyst Chua Su Tye raised the estimated DPU by between 5 and 8 per cent for the financial years 2022 to 2024 on stronger-than-expected first quarter results, as well as visibility on capital distributions.
Maybank kept its "buy" rating and raised Suntec Reit's target price to S$2 from the previous S$1.80. This presents a potential upside of 15 per cent from its last closing price.
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In a business update on the Reit's financial performance for the first quarter provided through a bourse filing on Tuesday, the company's gross revenue was up 13.9 per cent to S$99.2 million for the quarter, from S$87.1 million a year ago.
This was due to new contributions from The Minster Building in London, and higher contributions from Suntec City office and Suntec City mall.
With improved outlook across the portfolio, it said capital distribution that was put on hold due to the pandemic has resumed.
Net property income also grew 24.9 per cent on the year to S$74.3 million for the quarter, from S$59.5 million.
Distributable income rose 18.2 per cent year on year to S$68.7 million, from S$58.1 million.
Maybank said that Suntec Reit's first quarter results were strong and that it expects fundamentals for the Reit's retail and office assets in Singapore to strengthen further as the city-state eases its Covid-19 restrictions.
It believed that the recovery in retail is on a firm footing, with Suntec City mall's revenue going up.
As for its convention business, domestic demand for consumer and corporate events will remain the key near-term driver for it to reach breakeven, before the MICE (meetings, incentives, conferences and exhibitions) industry recovers in FY2023.
However, CGS-CIMB noted that Suntec Reit guidance was for rental reversions to still remain weak in the near term as retailers remain cautious.
As for Suntec Reit's office assets, Maybank said that demand for office rental is strong and continues to be led by tech and financial institutions.
However, it expects new leases signed on higher rates to ease, though still staying slightly positive.
CGS-CIMB noted that the Reit maintained its guidance for moderate positive rental reversions for the rest of FY2022.
Units of Suntec Reit were trading at S$1.85 as at 4.10 pm on Wednesday, up 0.5 per cent or S$0.01.
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