Date of Report
28 October 2024
Broker Name
OCBC Investment Research
Company Overview
Suntec REIT is a prominent real estate investment trust (REIT) focusing on office and retail properties. It operates a diversified portfolio primarily in Singapore and has international assets, including properties in Australia and the UK.
Recent Performance
3Q24 Distribution
The distribution per unit (DPU) for 3Q24 fell 11.9% year-on-year to 1.58 Singapore cents, primarily due to higher borrowing costs and the absence of capital distributions that were recorded in the previous year.
Financial Metrics
- Gross Revenue: SGD117.7 million, down 4.6% year-on-year
- Net Property Income (NPI): SGD79.8 million, down 5.7% year-on-year
- Cumulative 9M24 DPU: 4.622 Singapore cents, reflecting a 12.3% year-on-year decline
Operational Highlights
Rental Performance
Suntec REIT reported robust rental reversions for both its office and retail portfolios:
- Rental Reversions: +12.9% for the Singapore office portfolio and +21.2% for Suntec City Mall in 3Q24.
- Management expects Singapore retail rental reversions for FY24 to fall within the 15%-20% range, moderating to 10%-15% in FY25.
Occupancy Rates
- Overall Office Portfolio Committed Occupancy: Increased by 0.5 percentage points quarter-on-quarter to 95.6%.
- Retail Portfolio Committed Occupancy: Improved to 97.7%.
Financial Position
Leverage and Financing
- Aggregate Leverage Ratio: Unchanged at 42.3% from the previous quarter.
- The proportion of borrowings hedged increased by 6 percentage points to 61%.
Market Challenges
The REIT faced a decline in DPU largely due to the rising cost of borrowing and a reduction in contributions from certain properties. These pressures are expected to continue affecting balance sheet metrics in the near term.
Outlook and Recommendations
Management remains optimistic regarding future rental performance and believes that the occupancy rates for the Minster Building in the UK will return to full occupancy by the end of FY24. Despite the current challenges, the recommendation remains to hold the stock with a fair value estimate of SGD1.19.
ESG Considerations
Suntec REIT’s ESG rating was downgraded in November 2023 due to weaknesses in staff management practices compared to peers. However, it maintains strong business ethics practices, with 100% of its portfolio certified to green building standards.
