Suntec REIT sell-down overdone, says UOB Kay Hian

Suntec City Mall still has a fighting chance.

The recent sell-down in Suntec REIT’s shares is overdone, according to a recent report by UOB Kay Hian.

The report noted that concerns over Suntec City Mall Phase 3’s low passing rents are unwarranted and the REIT still stands to benefit from strong rental reversions in the next leasing cycle on the back of its better location compared with many suburban malls that have higher passing rents.

“We see value emerging in Suntec REIT post the 14% drop in the share price in the past four months mainly on concerns over the Suntec City Mall asset enhancement that fell short of initial guidance due to a challenging retail climate,” said the report.

Here’s more from UOB Kay Hian:

Concerns over Suntec City Mall AEI have been overdiscounted. Phase 3 of the AEI attained TOP in Feb with 80% precommitted occupancies brought the overall committed occupancies for Suntec City Mall to 93.6% (4Q14:91.3%).

Overall committed passing rent of S$12.15 psf pm was below the initial guidance of S$12.59 psf pm due to a challenging retail climate. However, we believe that the allure of Suntec City’s enviable position, drawing upon its catchment area of nearby offices and white collar presence, will see a boost from the newly-completed South Beach project.

Its proximity to the Esplanade, Promenade and City Hall MRT stations will also draw footfall and tenants. The present weak retail environment may see a longer-than-expected asset stablisation period, but prospects of strong rental reversions in the next leasing cycle remain intact due to its relatively low passing rents for a better location compared with many suburban malls that have passing rents of over S$15 psf pm.