Suntec REIT: Citi has key take away with mgt meeting. House maintains Buy with $1.53 TP.
Note that barring any major events, mgt expects 2012 to be a better year than 2011 for its office space at Suntec City as expiring leases were signed back in 2009 at the trough of the mkt. Mgt also disagrees with view that portfolio, especially the office component, will suffer a major write-down similar to during the sub-prime crisis. Barring unforeseen circumstances, gearing is
unlikely to rise past 45% either.
Post completion of AEI in Suntec city, mgt expects average rents to increase 25% to $12.59psf/mth from $10.10psf, with a projected ROI of 10.1%. Proceeds from Chijmes Sale will also mitigate impact from AEI, depending on the progress and the reception of the AEI during its initial stages.
House believe the stock is undervalued, and at current price offers over an 8% yield for office/retail exposure and trading at more than a 40% discount to book value.
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