Sunday, July 5, 2009

Suntec REIT - Outperform by CIMB (3 Jul 2009)

I currently own 11,000 shares in Suntec REIT. The price has been going down in the recent weeks. CIMB has issued an Outperform call on this REIT. See details of the report below:

First mixed commercial REIT in Singapore. Listed on the Singapore Exchange on 9 Dec 04, Suntec REIT owns almost 3m sf of prime commercial space in Singapore, consisting of retail and office properties in Suntec City, Park Mall, Chijmes and a one-third interest in One Raffle Quay.

Weak office outlook, but retail has growth potential. Weighed down by large upcoming supply and increasing shadow space, the outlook for the office sector remains weak. In our view, there is more room for upside surprises from the retail segment, catalysed by an increased catchment population from two new MRT stations at Suntec City, and direct linkage to the Marina Bay integrated resort.

Positives from ample liquidity and low interest rates. Our economists expect high liquidity and low interest rates to persist in a climate of weak global growth. This would be highly positive for REITs which should benefit from relatively easier and cheaper financing, as well as attractive spreads to government bond yields.

Initiate coverage with Outperform and DDM-derived target price of S$1.07 (discount 9.4%). We like Suntec REIT for its: 1) quality office and retail portfolio; 2) low leverage of 34.4%; 3) absence of refinancing concerns until 2011; and 4) severely discounted price for a possible fall in asset values. We believe that downside risks for the office sector have been factored into its price while upside surprises from its retail segment have largely been neglected.

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