Suntec Reit

Suntec Reit: Macquarie reiterate O/p with TP $1.85. House note that grp is a good entry point into office proxy + increased visibility on AEI. Share price is factoring in a 30bps rise in office cap rates, which is unwarranted given that SUN’s office portfolio was valued using conservative cap rates. Phase 1 of Suntec City Mall’s AEI began operations in Jun 13, with healthy occupancy of 99.6% and rent of S$13.09 psf, circa 5% and 30% higher than the same area and entire mall pre-AE. Attractive valuations vs. mean/sector, office accounts for 70% of its NAV. Current P/B of 0.75x, which has not factored in a potential NAV accretion of 8.5 S cts/share, appears attractive, compared to its mean of 0.80x and office SREITs’ mean of 0.87x. AEI’s full completion by end-FY14, FY15 yield of 7.0% is also significantly higher than its mean of 6.3% and office SREITs’ mean of 5.6%.