Overview of Suntec REIT’s FY24 Performance
Suntec REIT (SUN), a major player in Singapore’s real estate investment trust (REIT) sector, witnessed a steady performance in FY24 despite facing several challenges. According to the report dated January 27, 2025, Suntec REIT’s dividend per unit (DPU) for 2H and full-year FY24 stood at 3.15 cents and 6.19 cents respectively, in line with projections at 50.8% and 99.9% of forecasts. The REIT benefited from positive rental reversions across its office and retail segments but faced valuation dips in its overseas properties.
Key Highlights of FY24 Results
Suntec REIT reported a slight decline in revenue and net property income (NPI) for 2H FY24, recording S\$236.7 million (-0.7% year-on-year) and S\$159.8 million (-0.1% year-on-year), respectively. The dip was attributed to lower occupancy rates at properties in Australia and the UK, specifically 55 Currie Street and The Minster Building. However, strong performances from Suntec Office and Suntec Mall helped cushion the impact.
While the REIT’s portfolio value dipped by 1.2% during its year-end valuation exercise due to weakened property values in Australia and the UK, its aggregate leverage stood at 42.4% at the end of 4Q24. Debt costs averaged 4.06%, and management anticipated a further 10 to 20 basis point increase in funding costs for FY25. Additionally, the REIT divested S\$58.3 million worth of strata units at Suntec Office during FY24.
Office Segment Performance
Singapore
Suntec REIT’s Singapore office portfolio showcased resilience, benefiting from limited new supply in the market. Committed occupancy reached a robust 98.7% at the end of FY24, with rental reversions of +10.3% for the year (+9% in 4Q24) across 500,800 square feet of leased space. Despite positive growth, management guided for more modest rental reversions of +1% to +5% in FY25, owing to average expiring rents of S\$10.12 per square foot versus an average passing rent of S\$10.24 per square foot.
Australia
The office portfolio in Australia saw a slight improvement, with committed occupancy inching up by 0.3 percentage points quarter-on-quarter to 90.9% in 4Q24. Suntec achieved rental reversions of +11.9% for FY24. However, the office leasing environment in Adelaide remains challenging due to elevated vacancy levels, and management expects backfilling of vacant space at The Minster Building by FY25.
Retail Segment Performance
The retail arm of Suntec REIT continued to shine in FY24. Suntec Mall achieved an occupancy rate of 98.4% by the end of 4Q24, with stellar rental reversions of +23.2% for the year (+31.9% in 4Q24). Shopper traffic increased by 6.2% year-on-year, although tenant sales remained flat. Management projected continued rental reversions of +10% to +15% for FY25. Additionally, the Suntec Convention segment saw a 10.3% year-on-year improvement in net property income during 2H24, driven by lower costs from smaller but higher-yielding events.
Financial Adjustments and Investment Recommendation
CGS International revised Suntec REIT’s FY25-26 dividend per share (DPS) estimates downwards by 2.45% and 4.81%, respectively, citing a prolonged recovery period for its overseas properties. Consequently, the target price was adjusted to S\$1.33 from the previous S\$1.38. The REIT’s current price stood at S\$1.21, offering a 9.9% upside potential. CGS International maintained a “Hold” rating for Suntec REIT, citing limited near-term catalysts.
Upside Risks: Faster-than-expected strengthening of the REIT’s balance sheet through capital recycling activities and quicker backfilling of vacancies at overseas properties.
Downside Risks: Higher-than-expected interest rate hikes and a prolonged weak macroeconomic outlook dampening office space demand.
ESG Initiatives and Performance
Suntec REIT scored a C+ on the LSEG ESG Combined Score for FY23, with individual ratings of B- for Environmental, C for Social, and C for Governance. The Governance pillar remains an area for improvement. However, the REIT achieved significant milestones, including carbon-neutral status for 177 Pacific Highway and 55 Currie Street and WELL Platinum Certification for 477 Collins Street and Nova Properties. Approximately 70% of its debt comprises green or sustainability-linked loans as of June 2024.
Suntec REIT has set ambitious long-term goals, aiming for net-zero carbon emissions across all assets by 2050, including Scope 3 emissions. Near-term goals include reducing energy intensity by 3% in FY24 versus FY19 levels and maintaining water intensity.
Conclusion
Suntec REIT’s FY24 performance highlights its resilience amid global challenges, with strong fundamentals in its Singapore office and retail segments. While overseas properties remain a drag, the REIT’s proactive divestments and ESG initiatives are steps in the right direction. CGS International’s “Hold” recommendation reflects a cautious optimism, with a focus on long-term recovery and value creation.
