Brokers’ take: Analysts positive on Suntec Reit’s Singapore office portfolio

ANALYSTS raised their target prices for Suntec Real Estate Investment Trust (Reit), while highlighting its Singapore office portfolio as a bright spot for the Reit given its strong second-half and full-year performance. 

RHB Research on Thursday (Jan 25) upgraded its call to “buy” from “neutral”, and highlighted its unit price level to current valuation – which now stands at above 40 per cent discount to book – as a “good medium-term entry level”.

Its target price was lifted to S$1.35 from S$1.20, after the research house raised its FY2024 to FY2026 distribution per unit (DPU) estimates by 3 to 4 per cent to factor in lower interest costs and adjusted rent growth.

RHB analyst Vijay Natarajan said he believes market concerns over Suntec Reit’s valuation decline were “unfounded”, as its overall portfolio value rose year on year on the back of higher valuations in its Singapore assets. This more than offset valuation declines in Australia and the UK.

“Our cost of equity is also adjusted lower by 20 basis points with concerns on gearing now mitigated,” he said, deeming the Reit’s fourth-quarter results as “slightly better than expected”.

He forecasts the Reit’s financing costs to peak in FY2024 at about 4.1 per cent, before falling slightly in FY2025.

Maybank Securities and CGS-CIMB, however, maintained their “hold” calls on the Reit, although they lifted their respective target prices.

While Maybank lowered its FY2024 to FY2025 earnings estimates for Suntec Reit by 2 to 3 per cent to account for higher borrowing costs and an “income vacuum” in overseas offices, the research house raised its target to S$1.20 from S$1.15 to account for a lower 10-year Singapore-dollar government securities rate.

Its analyst Krishna Guha also opined that the Reit’s Singapore portfolio “shines”, despite higher vacancies in its overseas offices.

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CGS-CIMB, on the other hand, lifted its target price to S$1.29 from S$1.25 previously, as it rolled forward its earnings assumptions to FY2024.

While its analysts were sanguine on the Reit’s Singapore office performance in FY2023, they noted how the manager guided for a likely negative revenue impact in the UK portfolio over the next fiscal year due to leasing downtime.

The research house lowered its FY2024 to FY2025 DPU estimates by 4.6 to 5.8 per cent to account for leasing downtime from the Reit’s higher vacancies.

“We keep our ‘hold’ rating on limited near-term DPU growth prospects,” said CGS-CIMB’s analysts in a Wednesday report.

Units of Suntec Reit were trading S$0.03 or 2.4 per cent lower at S$1.20 as at 2.33 pm on Thursday.