Company Name: CAPITACOMMERCIAL TRUST
| Research House: Nomura | Price Call: BUY | Target Price: 1.49 |
Stock Name: SuntecReit
Company Name: SUNTEC REAL ESTATE INV TRUST
| Research House: Nomura | Price Call: BUY | Target Price: 1.61 |
Nomura said it prefers real estate investment trusts that are cheap on an implied enterprise value basis, have defensive occupancy rates and balance sheets, and are likely to report second quarter results that exceed expectations.
Its top picks among REITs are Suntec REIT and CapitaCommercial Trust, which both own office assets in Singapore.
Units of Suntec REIT were up 1.1% at $1.39, and have gained 29% since the start of the year. CapitaCommercial rose 0.8% to S$1.285, but jumped about 22% year-to-date.
Despite their large gains, Nomura said both Suntec REIT and CapitaCommercial still offer potential returns of 22-25% at current levels.
So far this year, Singapore REITs have outperformed the broader market, rising 18% compared to the benchmark Straits Times Index’s 11% gain.
“While REITs are generally perceived as defensive stocks by the market, concerns over portfolio vacancies, rising operating costs and balance sheets often make investors skeptical," Nomura said.
However, CapitaCommercial’s occupancy as of March was 95%, while Suntec REIT’s was 99%, the broker said, adding that CapitaCommercials’ management took steps to lengthen debt maturity from one to three years while keeping a relatively low gearing of 31%.
Nomura raised its target price for CapitaCommercial to $1.49 from $1.47 and maintained a ’buy’ rating. It also reiterated its ’buy’ rating on Suntec REIT, but trimmed its target price to $1.61 from $1.64, reflecting a slightly lower net asset value estimate.
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