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Thursday, December 17, 2020-12: 00 pm
MAYBANK Kim Eng has initiated the “sale” in Suntec Real Estate Investment Trust (Suntec Reit) and Keppel Reit with target prices of S $ 1.20 and S $ 0.90 respectively.
This occurs when the research team sees further deterioration and headwinds for the Reits, it said in separate reports.
Maybank KE analyst Chua Su Tye said Suntec Reit’s slow retail recovery and rising office vacancies due to growing work-from-home trends suggest weak fundamentals.
Chua said Reit’s inorganic initiative is a ray of light, as contributions increase in 2021 from 21 Harris Street and 477 Collins Street in Australia, alongside the recently acquired Nova properties in the UK.
Although they are probably insufficient to fully offset the downward pressure in your current operation, they could help you reduce capital distributions, which have been supplementing dividends, he added.
Maybank KE noted that Suntec Reit’s post-Nova acquisition leverage is the highest among its peers at around 43 percent. While Suntec Reit is interested in recycling assets to further reduce gearing, the research team sees a per unit neutral distribution (DPU) impact given the weak pricing power in this cycle.
“We see an excess of a potential dilutive stock surge as Suntec Reit continues to pursue acquisition opportunities, given the high 43% leverage and valuations at 0.7 times book value,” Chua said.
Meanwhile, he said Keppel Reit’s DPU was “unexciting in front of his peers.” The research team continues to see headwinds for leasing vacancies and pressured rents, especially in the coming quarters, as companies re-evaluate post-Covid-19 options.
Maybank KE anticipates further reductions by the tenants of Keppel Reit’s financial institutions, which comprise around 36% of its net leasable area.
The research team noted that acquisition growth continues to be challenged by Reit’s high business performance versus tighter office returns. The deals are likely to fit in with Keppel Reit’s sponsor’s plan to monetize S $ 3 billion to S $ 5 billion in assets, including Keppel Bay Tower and Keppel Towers, which have been earmarked for redevelopment.
As of 11:30 a.m. on Thursday morning, Suntec Reit units were trading unchanged at S $ 1.54, while Keppel Reit was trading 1.9 percent or S $ 0.02 higher at S $ 1.10.
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