CGS-CIMB More Upbeat On Suntec REIT Due To Strength In Office Market
SINGAPORE – Thanks to confidence in the REIT’s office portfolio, CGS-CIMB upgraded its call on Suntec REIT from ‘hold’ to ‘add’. However, the research house maintained its target price at S$1.79, reported The Edge on Thursday noon (28 July, SGT).
One reason for the upgrade is that the Singapore-listed real estate investment trust (S-REIT) saw a better operating performance during the first half of the year, said CGS-CIMB analyst Lock Mun Yee in a note.
For instance, Suntec REIT recorded a positive rental reversion of 5.5 percent for its office portfolio in H1 2022 amidst a rebound in office occupancy rate. Apart from that, its distribution per unit (DPU) rose 15.8 percent year-on-year to S$0.0481
In the United Kingdom, the S-REIT benefited from income from the Minster Building and lower retail rent rebates, she noted. In addition, the trust has “minimal” expiries in Singapore, Australia, and the UK for H2 2022.
But CGS-CIMB slashed its DPU estimates for Suntec REIT for the entirety of this year to take into account the trust’s guidance for higher utilities costs in FY2023 and the marginally higher interest costs
“However, we believe Suntec REIT’s 13 percent decline in share price over the past three months would likely have priced in these challenges,” Lock explained.
Furthermore, the S-REIT is also carrying out an asset enhancement initiative (AEI) at the 2nd floor of Suntec Mall’s east wing. Poised to be completed by Q4 2022, the upgrading works will boost lettable space by 13 percent and generate a forecasted 15 percent return on investment (ROI), she added.