SINGAPORE (June 20): RHB Research is maintaining Suntec REIT at ‘neutral’ despite an improved balance sheet, given operational weaknesses are expected to persist until 1H20.

This is because two of its seven assets are under development while Suntec City Offices is undergoing asset enhancements.

In Australia, its Olderfleet building is on track to be completed by mid-2020. Leasing progress has been healthy, with 76% pre-committed, and a heads of agreement signed for an additional 13%.

“We expect positive contributions to DPU upon completion of the above, which should help in organic DPU growth from 2021 onwards,” says analyst Vijay Natarajan in a Thursday report.

Another positive development is the leasing of Suntec’s upcoming development’s office space at 9 Penang Road to UBS. Suntec has a 30% stake in the development and is in advanced discussions for leasing the remaining 15,000 sf of retail space.

In May, Suntec completed a private placement of 111.1 million new units, raising gross proceeds of $200 million which will be used to fund potential acquisitions of properties in Australia that are currently undergoing due diligence.

Suntec currently has three assets (including one under development) in Melbourne and Sydney, which account for some 15% of total Net Property Income.

Management previously said it will look for opportunities to acquire good-quality assets in the suburban markets of Sydney and Melbourne, and the core-CBD market for other key cities in Australia.

“With the transaction yield of Australian commercial assets ranging 4.5-6.5%, we expect the acquisition – if completed – to be yield-accretive to unit holder,” says Natarajan.

As at 3.10pm, units in Suntec REIT are trading at $1.92, implying 5.4% FY20F dividend yield.