Suntec REIT’s Q2 2022 in Line; Recovery on Track; Trading at an Attractive Forward Yield of 6.0%

Bolstered by the substantial easing of COVID-19 restrictions since end-April, Suntec REIT ended the first half of 2022 with a strong set of results. Notably, second-quarter 2022 rental reversion for its retail portfolio turned to a positive 2.7%, driven by Suntec City Mall, while its Singapore office portfolio registered its 16th consecutive quarter of positive rental reversion at 5.7%. Gross revenue and net property income jumped 22% and 36% year on year to SGD 203.5 million and SGD 152.9 million, respectively, making up 49% and 51% of our full-year estimate. Although we expect some upward pressure on yields due to the rising interest rate environment, we have already factored in a 50-basis-point and 100-basis-point yield expansion on the exit cap rate for Suntec REIT’s office and retail assets, respectively. Based on current price, Suntec REIT trades at a forward yield of 6.0%, which we believe is an attractive spread to the Singapore 10-Year Government Bond Yield of 2.7%.