Brokers' take: Maybank, RHB raise Suntec Reit target price on post-FY2021 results

MAYBANK Securities and RHB have both increased their target prices (TP) for Suntec Reit T82U by S$0.05, maintaining their "hold" and "buy" calls respectively after the real estate investment trust (Reit)'s distribution per unit (DPU) increased by 9.8 per cent for the financial year ended Dec 31, 2021.

In a report on Thursday (Jan 27), Maybank Securities' TP was revised up to S$1.45 from S$1.40. RHB's TP was raised to S$1.77, from S$1.72.

Units of Suntec Reit closed flat at S$1.55 on Thursday.

Maybank Securities analyst Chua Su Tye observed that office rental reversion was slower at 3.2 per cent for FY2021 and should ease further in FY2022, due to higher expiring rents.

As for Suntec's retail properties, Chua said that although mall revenue and net property income had increased year on year due to the higher occupancy of 94.7 per cent in Q4 FY2021, the retail rental outlook remained weak. He expects rental reversion to moderate at a decrease of 10 per cent in FY2022.

Although it has diversified its portfolio with overseas acquisitions, high gearing is likely to cap the Reit's accretion from future deals as it is higher than most of its peers and its own history at 43.7 per cent, decreasing from 44.3 per cent, Chua added.

The analyst prefers CapitaLand Commercial Integrated Trust with a "buy" call and TP of S$2.55, given catalysts from its DPU recovery in 2021 and redevelopment upside.

Meanwhile, RHB analyst Vijay Natarajan projects an "upbeat" office outlook, as occupancy in Q4 rose across most of its office assets in both Singapore and overseas in a sign of improving demand, coupled with positive rental reversions that are likely to continue.

He increased the Reit's FY2022-2023 DPU estimates by 2-3 per cent due to the Reit's higher occupancy and tweaking interest costs.

He expects that retail and convention will be stabilising over the next year. Natarajan remarked that Suntec Reit's valuation, which had risen across all its portfolio assets, also remains attractive as it is among the cheapest in the Singapore Reits at 0.7 times its pricing-book ratio, which he believes is unjustified.

Natarajan also highlighted the higher portfolio value as a reason for its gearing, noting that planning amendments from authorities for Australia's Southgate retail asset enhancement and development of new office towers have been obtained.

The Reit currently owns a 50 per cent stake in the building. Natarajan believes it may divest its stake to a joint venture partner at a higher valuation, factoring in redevelopment potential, and reinvest the proceeds elsewhere.

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