Suntec REIT (SUNT.SI) Analysis: 1Q25 DPU Growth, Risks & Investment Outlook

OCBC Investment Research Private Limited

25 April 2025

Suntec REIT: Growth at Last, But Challenges Remain

Investment Thesis

Suntec REIT’s Singapore operations are showing promising signs with strong rental reversions in both retail and office portfolios. The convention business is also recovering faster than anticipated. However, the pace of rental reversion for Singapore office assets is expected to slow down. The long-term impact of work-from-home trends introduces uncertainties, even as more employers encourage a return to the office. In Australia and the UK, Suntec REIT faces challenges including asset valuation impairments due to rising capitalization rates and occupancy pressures. Additional risks include currency fluctuations, a high aggregate leverage ratio, a low-interest coverage ratio (ICR) relative to peers, and slow progress in asset divestments. [[1]]

Investment Summary

• 1Q25 distribution per unit (DPU) increased 3.4% year-on-year (YoY) to 1.563 Singapore cents, meeting expectations. [[1]]
• Gross revenue and net property income (NPI) rose 3.4% and 5.0% YoY to SGD113.5m and SGD77.1m, respectively, driven by improved performance in Singapore properties. [[1]]
• Higher joint venture income and lower financing costs (SGD1.8m per annum savings from refinancing) contributed to the DPU growth. [[1]]
• This marks the first positive YoY DPU growth since 1H22. [[1]]
• 1Q25 DPU formed 24.9% of FY25 forecast. [[1]]

Operating Metrics [[2]]

• Office portfolio committed occupancy remained stable QoQ at 98.7% in Singapore and 90.9% in Australia, with a slight increase in the UK to 95.3%.
• Rent reversions in Singapore were +8.0%, with Suntec City Office at +5.5% and One Raffles Quay and MBFC Towers 1 & 2 combined at +10.3%.
• Management expects more modest rent reversions between 1% and 5% in FY25.
• A more cautious mood among office tenants could delay decision-making on signings.
• Retail portfolio rent reversions moderated to 10.4% for Suntec City Mall, compared to 23.2% in FY24.
• Singapore retail portfolio committed occupancy was fairly stable at 98.2%.
• Shopper traffic and tenant sales per square foot both fell 3% YoY, with expectations of subdued retail sales due to cautious consumer spending.
• Committed occupancy is expected to stay above 95%, and rent reversion should see modest increases of around 5-10%.

Balance Sheet [[2]]

• Aggregate leverage ratio increased from 42.4% (as at 31 Dec 2024) to 43.4%.
• 65% of borrowings have been hedged, higher by 7 ppt QoQ.
• All-in financing cost dipped slightly by 10bps QoQ to 3.96%, and the interest coverage ratio stood at 1.9x.

ESG Updates [[2]]

• Suntec REIT’s ESG rating was upgraded in Nov 2024.
• Business ethics practices are ahead of global peers, with a detailed anti-corruption policy and ethics audits.
• As of FY23, 100% of the portfolio was certified to recognised green building standards.
• Attained a 5-Star rating for the fifth consecutive year in the 2024 GRESB Real Estate Assessment.
• Appears to lack green leases to encourage resource conservation among tenants.
• Corporate governance practices scored average compared to global peers, with a fully independent audit committee monitoring recurring related party transactions.

Potential Catalysts [[3]]

• Stronger-than-expected recovery in office and retail rents.
• DPU accretive acquisitions.
• Better-than-expected momentum in footfall and tenants’ sales for Suntec City Mall.

Investment Risks [[3]]

• A slowdown in macroeconomic conditions may dampen consumer and business sentiment.
• A rising interest rate environment could raise borrowing costs for Suntec REIT.
• Non-renewal of leases by key tenants.

Valuation Analysis [[3]]

Comparison of Suntec Real Estate Investment Trust (SUNT.SI) with peers:

Company Overview (as of 31 December 2024) [[4]]

Suntec REIT, listed on 9 Dec 2004, has properties in Suntec City, Singapore’s largest integrated commercial development, a 66.3% interest in Suntec Singapore Convention & Exhibition Centre, a one-third interest in One Raffles Quay and a one-third interest in Marina Bay Financial Centre Towers 1 and 2 and the Marina Bay Link Mall. Suntec REIT holds a 100% interest in a commercial building at 177 Pacific Highway, Sydney, a 100% interest in a commercial building at 21 Harris Street, Pyrmont, Sydney, a 50.0% interest in Southgate Complex, Melbourne, a 50.0% interest in a commercial building at Olderfleet 477 Collins Street, Melbourne and a 100% interest in a commercial building at 55 Currie Street, Adelaide, Australia. Suntec REIT also holds a 50.0% interest in Nova Properties and a 100% interest in The Minster Building both located in London, United Kingdom. [[4]]

Suntec REIT is managed by ESR Trust Management (Suntec) Limited (formerly known as ARA Trust Management (Suntec) Limited). It is committed to sustainable management, good corporate governance, prudent financial management, fair employment practices, and efficient resource utilization. [[4]]

FY24 Revenue Breakdown [[4]]

• Retail: 30.4%
• Office: 55.9%
• Convention: 13.7%

FY24 Net Property Income Breakdown [[4]]

• Retail: 31.2%
• Office: 63.2%
• Convention: 5.6%

Suntec City Office Portfolio Avg. Gross Rent [[4]]

Trend of Suntec City Office Portfolio Average Gross Rent (SGD psf per month):

• 4Q18: 8.45
• 4Q19: 8.58
• 4Q20: 8.84
• 4Q21: 9.25
• 4Q22: 9.35
• 4Q23: 9.85
• 4Q24: 10.24

Distribution per unit [[4]]

Trend of Distribution Per Unit (DPU) (S cents):

• FY2018: 9.99
• FY2019: 9.51
• FY2020: 7.40
• FY2021: 8.67
• FY2022: 8.88
• FY2023: 7.14
• FY2024: 6.19

Company Financials [[5]]

Income Statement (In Millions of SGD except Per Share)

Profitability Ratios [[5]]

Credit Ratios [[5]]