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Suntec REIT: BUY calls.

Thursday, October 28, 2010

Suntec REIT is enjoying BUY calls from DBS Vickers and CIMB even as it prepares to acquire a one third stake in MBFC. Some salient points:

DBS Vickers
The group revalued up portfolio by 3.6% translating to NAV of $1.828/share. Going forward, Suntec has c14% of office and 27% of retail NLA due for reversion in 2011 and we expect office rents to show some uptick while retail component to remain stable.

Recent refinancing exercise of $700m due in FY12 are likely to lower its current overall cost of debt of 3.77% as the new loans were concluded at a lower spread of 1.5%, as well as smoothen out the group’s debt maturity profile.

We are tweaking our FY11 numbers by 3.1% to reflect the impact of recent refinancing exercise but exclude the effect of the MBFC1 acquisition. Maintain Buy call pending more information on the transaction. Based on FY10 and FY11 DPU of 9.8cts and 9.7cts, Suntec is trading at decent DPU yields of 6.3-6.2%. Our target price of $1.66 offers 12% total return.


CIMB
3Q10 NPI grew 7.6% yoy, led mainly by a 2.1% yoy increase in gross revenue on stronger office contributions and a lower property tax. Portfolio occupancy continued to strengthen on the back of better office occupancy which mitigated lower retail occupancy in the quarter.

Our DDM-based target price, however, has been raised to S$1.63 (discount rate 8.1%) from S$1.60 as we roll over to end-CY11. Maintain Outperform on further improvements in the retail and office outlook. We see near-term catalysts from more concrete signs of DPU accretion from the latest acquisition.

I would wait for the circular on the proposed acquisition and method of financing to be released to unitholders before commenting further.

Related post:
Suntec REIT: MBFC.

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