But with a multi-year upturn in the Singapore office rents on the horizon, Song argues that REITs with office exposure should trade above book value, as seen historically.
Song also believes the rally can be sustained from current levels, as he now has greater confidence in CEO Chan Kong Leong’s ability to engineer a turnaround at Suntec mall having done a deep dive into the property and identified easy wins to improve the mall’s performance.
For instance, Suntec REIT remixes its tenant pool by placing children stores next to the playground rather than opposite ends of the mall. This could result in higher foot traffic, tenant sales and improving rents which should act as re-rating catalysts.
At present, passing rents at Suntec Mall of $10-11 psf/month are at a significant discount to other suburban malls of up to $17-18 psf/month.
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Meantime, there has been speculation over the years of Suntec being by privatised by sponsor ARA Asset Management and its partners.
With the backing of Warburg Pincus/Avic Trust now, Song believes ARA has the resources to privatise Suntec if the market undervalues the REIT.
"Based on an offer price at our of $2.30, we estimate ARA could generate an IRR of 10%. Thus, we believe the public market to re-rate Suntec; otherwise it is vulnerable to a takeover," says Song.
Shares in Suntec REIT are up 1 cent at $2.08 or 4.8% distribution yield based on FY18 DPU.
