Brokers' take: Higher office space demand from TMT to benefit Suntec Reit, say analysts

ANALYSTS across four research houses are expecting rising demand for office space from the technology, media and telecommunications (TMT) sector to benefit Suntec Reit as more technology giants look to set up their regional headquarters in Singapore.

UOB Kay Hian and CGS-CIMB both reiterated their "buy" and "add" call respectively, on expectations that the positive rental reversions in the office sector will continue the uptrend in 2021.

CGS-CIMB has raised its target price for Suntec Reit to S$1.76 from S$1.73 previously. In a research note on Tuesday, its analysts said they are optimistic that the Reit will recover in the upcoming FY2021 on the back of a "faster than expected recovery of its retail and convention business from Covid-19 disruptions".

UOBKH has however downgraded its target price on the Reit to S$1.72 from S$1.75 previously, after trimming its 2021 distribution per unit (DPU) forecast by 3 per cent to 9.2 Singapore cents, due to continued negative rental reversions for Suntec City Mall. In a report on Wednesday, the research house nonetheless highlighted that at the unit price of S$1.55, Suntec Reit is trading at a discount of 25 per cent to its net asset value to share ratio (NAV/share) of S$2.055.

Meanwhile, OCBC Investment Research has raised its fair-value estimate for Suntec Reit to S$1.59 from S$1.57 previously with a "hold" recommendation. This comes as the Reit performed above OCBC analysts' expectations despite the easing of its FY2020 DPU by 22.1 per cent to 7.4 Singapore cents.

"Looking ahead, we expect (Suntec Reit's) retail segment to continue its gradual but uneven recovery. Its convention segment's performance will continue to be adversely impacted by the Covid-19 pandemic," said the analysts in a report on Tuesday.

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They also expect the Reit's office portfolio to achieve positive rental reversions, although at a smaller magnitude as compared to FY2020. In particular, they believe growth in the trust's office portfolio in Australia will be underpinned by firm occupancy and long weighted average lease expiry despite the risk of a volatile Australian dollar.

On the other hand, Maybank Kim Eng has maintained its "sell" call on the Reit, slightly lowering its target price to S$1.19 from S$1.20 previously amid expectations of weak operational metrics in Singapore.

Citing the management's view that rental reversions will remain negative in 2021, Maybank KE analyst Chua Su Tye noted that the Reit's gearing remains the highest among its peers, foreseeing an overhang from a potential dilutive equity raise as the trust continues to pursue acquisition opportunities.

"Suntec Reit is keen on asset recycling to further lower gearing, but we see a neutral DPU impact given weak pricing power in this cycle," said Mr Chua.

Units of Suntec Reit were trading at S$1.56 as at 3.11pm on Wednesday, up S$0.01 or 0.7 per cent.