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Suntec REIT - Retail catalysts
Monday, July 20, 2009
Suntec REIT owns 3m sf of prime commercial space in Singapore, including Suntec City, Park Mall, Chijmes and One Raffle Quay. The outlook for office space is weak with a large supply overhang. In our view, there is more room for upside surprises from its 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. Additionally, high liquidity and low interest rates are positive for REITs which should benefit from easier and cheaper financing. We like Suntec REIT for its: 1) quality commercial portfolio; 2) low leverage of 34.4%; and 3) absence of refinancing concerns until 2011. We believe that downside risks for the office sector have been factored into its share price while upside surprises from its retail segment have largely been neglected. Initiate with Outperform and a DDM-derived target price of S$1.07 (discount 9.4%).
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