Suntec Reit

Suntec Reit: Daiwa reiterate Buy, TP $2.00, still the top pick. Note that investor concerns over Suntec's acquisition of 177-199 Pacific Highway, a 31-storey office tower under development in the North Sydney CBD, are unfounded and its current 25% discount to book value (of SGD2.053) is excessive. Suntec will buy the property for AUD413.9m, which will provide a 4-year rental guarantee to Suntec for any vacancies in the remaining space on the prime top floors. Suntec expects an initial NPI yield of 6.9% for the first year (scheduled to open in early 2016). Believe this looks reasonable as the recent transaction cap rates since June 2013 were in the 5.8-6.5% range for the Sydney CBD. Believe the Australian acquisition would be DPU accretive with minimal leasing risk, have negligible impact on the gearing, and would not trigger an equity fundraising exercise