Brokers' take: Analysts positive on Suntec Reit's active portfolio management

ANALYSTS are positive on T82U : T82U 0%'s active management of its portfolio as it will likely add to its net asset value per unit and distribution per unit (DPU).

The real estate investment trust's (Reit) manager announced on Tuesday it was divesting a portfolio of strata units at Suntec City Office for S$197 million and acquiring a Grade-A office building in London for £353 million (S$667.2 million).

The move, together with the recent sale of its 9 Penang Road property, is part of the Reit's plan for active portfolio management to enhance unitholders' value, the Reit's manager said.

RHB Bank said that this was "a positive move, and reaffirms (Suntec Reit's) value-unlocking strategy". In a report on Thursday, it raised its target price on the Reit to S$1.76 from S$1.72, and maintained its "buy" call.

The research team said the key benefit of Suntec Reit's new London property, the Minster Building, is its long weighted lease expiry, which highlights the long-term commitments of its tenants and "offers investors comfort in current market conditions".

It also noted that 75 per cent of the leases at Minster Building will likely be reviewed equal or higher in the near term, which could provide some upside for the Reit.

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Furthermore, RHB noted that the Reit was undervalued and trading at around a 30 per cent discount to its book value, amid the continued positive outlook on the office sector post-pandemic.

CGS-CIMB on Wednesday also raised its target price on the Reit to S$1.79 from S$1.76, while maintaining its "add" call.

The research team had raised its DPU estimates for Suntec Reit by 1.3 per cent in FY2021, 6.1 per cent in FY2022, and 6 per cent in FY2023 to account for the divestments and acquisition.

Both research teams noted that the Reit's manager may plan to undertake more capital management strategies, including divestments and further perpetual securities issuance.

This includes potential divestment opportunities for its Australian assets, which could further lower the Reit's gearing, RHB said. Currently, its gearing would have likely declined to 43.8 per cent from 44.3 per cent as at December 2020 due to its recent divestments.

Units of Suntec Reit closed at S$1.47 on Thursday, up S$0.01 or 0.69 per cent.