Monday, 18 November 2013

Analysis of Suntec Reit

Suntec is all along a consensus buy among analysts due to its strong fundamentals, but the recent price action embarrassed that idea.

Since the start of Nov, Volume has increased, especially on the black candle days. Price is dropping along the lower Bollinger Band boundary - A good sign of price weakness.

While its price seems to march steadily towards the low appeared in late Aug, Suntec announced its plan to acquire office property in Sydney last Friday. It is the first overseas property Suntec brings into its portfolio. According to its press release, the purchase will be immediately yield accretive even though the office is expected to complete in 2016. One day after the news, Suntec's price jumped 1.3% higher. I have vested with 1 lot only, and I intend to hold for long term. The question is whether it is time to buy more. At the closing price1.585, the current yield is 5.7% and the forward yield is about 6%. I intend not to load more at this price level, although I believe that the steep price drop should be tamed in short term.
Another look at the monthly chart. In the longer time frame, the price movement provides a different angle.The price is flirting with mid BB band since plunged in May. It is reaching critical support level now.  
Like always, analysts are still in love with this counter.

OCBC Investment Research

Suntec REIT: Foray into overseas market
Suntec REIT announced last Fri that it is seeking to acquire a 100% interest in 177-199 Pacific Highway for A$413.19m (~S$483.4m). While we are surprised by the timing of the acquisition and Suntec REIT’s move into the overseas market, we see several positives in the investment. First, as the transaction is expected to be earning accretive, this may reduce/eliminate the need to dip into CHIJMES sales proceeds to mitigate the temporary decline in DPU due to Suntec City asset enhancement. Second, the property is 100% pre-committed with the Leighton Group taking a head lease of 76% of the NLA for an average lease term of ~10 years. As such, the arrangement provides income certainty and stability to Suntec REIT. Lastly, the acquisition will be fully funded by a S$500m five-year unsecured loan facility. This dispels market fears of an equity fund raising. We raise our fair value to S$1.90 from S$1.85 after factoring the acquisition. Maintain BUY on Suntec REIT.

UOB KayHian Retail Market Monitoring

Suntec REIT- Acquires upcoming Sydney office tower for A$413m.
(SUN SP/BUY/S$1.57/Target: S$2.12)
FY13F PE (x): 35.9
FY14F PE (x): 25.2
A$413m acquisition of upcoming office tower in North Sydney. Suntec REIT is proposing to acquire a 31-storey upcoming Grade-A office development at 177-179 Pacific Highway in North Sydney for A$413.19m (S$482m), which is in line with the independent valuation by Colliers. The
freehold property, with an expected NLA of 423,915sf is expected to be completed by early-16. The property is well located in the secondary North Sydney CBD at the junction of Pacific Highway and Berry Street and is a 5-minute walk from North the Sydney station. We maintain BUY with a higher
target price of S$2.12 (from S$2.07) based on DDM (required rate of return: 7.1%, terminal growth: 2.2%). We have also raised our required rate of return by 50bps to factor in the overseas and execution risk.

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