He explains that the REIT’s Singapore operations continued to gain good traction, achieving robust rental reversions for both its retail and office portfolios. Meanwhile, convention business has also recovered faster-than-expected according to the analyst’s perspective.
“However, rental reversions for its Singapore office assets are likely to moderate ahead, and there continues to be uncertainties over the longer-term impact of work from home trends, although more employers appear to be encouraging their employees to return to office,” states Wong.
Given Suntec REIT’s healthier financial position and improving prospects of Singapore’s office market, Wong has lowered his cost of equity assumption from 7.0% to 6.8%.
“As we also roll forward our valuations, our fair value estimate is increased from $1.30 to $1.43. Another reason supporting our lower discount rate assumption is the better alignment of interest post the acquisition of Suntec REIT’s manager by Acrophyte Asset Management Pte Ltd, an entity owned by Mr. Gordon Tang,” concludes Wong.
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Meanwhile, Vijay Natarajan of RHB Bank Singapore, believes that “stars are aligned” at Suntec REIT and is reiterating a “buy” call with a higher target price of $1.67.
According to his Jan 26 report, Suntec REIT posted a strong set of FY2025 results that were above his estimates and consensus estimates, driven by lower interest costs and stronger organic income growth.
“FY2026 DPU outlook remains positive with income growth from continued positive rent reversions and interest savings from lower-than-expected interest costs,” says Natarajan.
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The analysts expect Suntec REIT’s FY2026 financing cost to be slightly below 3.7% per annum with minimal debt due for refinancing and 65% of the REIT’s loans hedged currently.
“Suntec REIT has $150 million @ 4.25% per annum of perpetual securities due for interest reset in June, which is currently trading above par. As such, we expect some interest savings from potential reissuance of this perps,” states Natarajan.
With the adjustment in interest cost and rent growth assumptions, the analyst revised upwards his FY2026 and FY2027 DPU forecast by 5% and 3% respectively.
DBS Group Research analyst, Dale Lai, is also keeping his “buy” recommendation on Suntec REIT with a higher target price of $1.60.
From Lai’s perspective, with a solid showing in Suntec REIT’s FY2025 earnings, and improving office sector fundamentals for the REIT’s portfolio, he has revised upwards Suntec REIT’s earning projections.
“Tailwinds from lower interest rates will add another layer of earnings growth, and we believe the stock is trading at very attractive valuations with 0.7 times P/B multiple currently.”
“Our revised projections suggest a 6.6% growth in earnings y-o-y, underpinned by Suntec REIT’s Singapore portfolio, as well as interest expense savings,” explains Lai.
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At the same time, the analyst believes that the impending change in the ownership of the REIT manager will lift a longstanding overhang on the control of the REIT.
“This shift strengthens the Manager-Shareholder alignment of interests, which we believe could translate into a more proactive and growth-oriented strategy over time.”
“We believe this warrants a tighter yield spread compared to the past, as we look forward to forthcoming strategic actions to define its future direction and longer-term strategy,” concludes Lai.
Concurrently, Darren Chan of PhillipCapital is reiterating his “accumulate” call on Suntec REIT with a higher DDM-based target price of $1.63, from the previous target of just $1.40.
“2HFY2025/FY2025 DPU of 3.88/7.035 Singapore cents rose 23%/13.6% y-o-y, beating our expectations and forming 57%/104% of our FY2025 forecast,” says Chan.
Chan explains that the outperformance was driven by a 12.8% y-o-y decline in FY2025 finance costs and stronger operational performance across the Singapore portfolio, more than offsetting weaker contributions from the Australian properties and The Minster Building in the UK.
Suntec REIT saw strong positive FY2025 rental reversion of 9.6% and 15.3% across its Singapore office and retail segments, respectively, while the Australian portfolio recorded a modest 1% effective rent reversion.
With the expectation of a lower interest costs and Singapore’s strong operating performance in FY2026, Chan raises his FY2026 DPU estimate by 9%. He sees Suntec REIT’s portfolio resiliency being anchored by the Singapore assets, with rental reversions expected to remain robust at 10% for retail and 5% for office.
“The new owner of the REIT manager (pending MAS approval) is also the largest unitholder, enhancing alignment of interests and potentially supporting an acquisition pipeline,” concludes Chan.
Finally, Xavier Lee of Morningstar raises his fair value estimates for Suntec REIT from $1.38 to $1.66 after unwinding the 30 basis point cap rate expansion tied to concerns about pressured asset divestments.
"While we previously flagged concerns about Suntec REIT's low interest coverage ratio, we think that the worst is now behind it as interest rate have declined," says Lee.
From the analyst' point of view, he belives that Suntec REIT's units are currently being undervalued, trading at FY2026's distribution yield of 5.2%.
Meanwhile, Lee does not expect the acquisition of Suntec REIT's manager by Acrophyte Asset Management to materially affect operations, as the ultimate owners, Gordon and Celine Tang, have been longtime investors in Suntec REIT.
Suntec REIT, meanwhile, states that 9 Penang Road, which is a former asset of the REIT, is seen as a potential pipeline asset from the new manager.
"Beyond this, however, Acrophyte has limited office and retail assets that could serve as a future acquisition pipeline," concludes Lee.
As of 10.10am, units in Suntec REIT are trading 1 cents lower, or 0.69% down at $1.45.
