"With a positive resolution likely on the tax impact, and tailwinds from falling local interest rates, we see the share price bottoming out," says Natarajan, who has kept his "buy" call and $1.35 target price.
"Suntec REIT remains a potential privatisation, internalisation, and M&A target, given its high-quality assets and deep trading discount of 0.55x P/BV," he adds.
Around four months ago, Suntec REIT announced that it would not qualify for so-called managed investment trust (MIT) status in FY2025, as the stakes of controlling shareholders Gordon Tang and Celine Tang crossed 10%, which disqualifies them from a concessionary tax rate.
According to Suntec REIT, they have since restructured their holdings, and the REIT is now compliant.
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In 1QFY2025, the REIT recorded a tax provision of around $2 million due to the absence of the MIT status. "This could be reversed, if the REIT secures the exemption," says Natarajan.
In addition, the REIT has priced $250 million in perpetual securities that will be issued on June 17 bearing a fixed coupon of 4.48% pa – slightly better than expectations.
Funds raised from this issue will be used to pay down its existing $200 million perps at 3.8% pa, callable in October. Suntec REIT has another $150 million of perps at 4.25% pa, due for reset next June.
Given that only 65% of its debt is hedged, Suntec REIT is also a prime beneficiary of falling domestic interest rates, according to Natarajan. Singapore Overnight Rate Average (SORA) has declined by 80bps year to date.
Natarajan also notes that the REIT's operational performance remains healthy with average rent reversions in 1QFY2025 at 8-10% across its Singapore office and retail assets, with stable occupancy.
"Management is likely to continue its tactical divestment of the Suntec City Strata office at a premium to book value, and look at potential divestments of mature Australian assets to lower its relatively high gearing," adds Natarajan, who expects between $50 -100 million of divestments this current FY.
Suntec REIT units changed hands at $1.12, down 1.75% as at 11.07 am.
