What is the first thing that comes to mind when I mention about Suntec REIT (SGX:T82U)?

That’s right, it is the REIT’s namesake retail mall, office buildings, and convention centre. On top of that, the REIT also has the following properties in Singapore: One-third interest in One Raffles Quay, Marina Bay Financial Centre Towers 1 and 2, and the Marina Bay Link Mall.

Outside of Singapore, the REIT has investments in commercial properties in Australia (177 Pacific Highway and 21 Harris Street in Sydney, 50.0% interest in Southgate Complex and 50.0% interest in Olderfleet, 477 Collins Street in Melbourne, and 55 Currie Street in Adelaide) and in the United Kingdom (50.0% interest in Nova North, Nova South, and The Nova Building, and The Minster Building in London).

Yesterday morning (27 March 2024), the commercial REIT published its annual report for the financial year ended 31 December 2023 (i.e., FY2023), and in this post, you will find my summary of it, along with details of its upcoming AGM:

Summary of Suntec REIT’s Annual Report for FY2023

Financial Performance:

  • Gross revenue increased by 8.3% to $426.7m (FY2022: $427.3m) mainly due to higher contribution from Suntec City Office, Suntec City Mall, and Suntec Singapore, as well as higher contribution from The Minster Building. However, this was partially offset by lower revenue from the Australian portfolio, as well as the weaker Australian Dollar.
  • Net property income declined marginally by 0.8% to $313.2m (FY2022: $315.8m), as higher revenue attained was offset by higher maintenance fund contribution and commencement of sinking fund contribution in FY2023.
  • Income contributions from joint ventures declined by 20.9% to $90.4m (FY2022: $118.8m) mainly due to higher interest expense at MBFC (Marina Bay Financial Centre) properties and One Raffles Quay and lower contribution from Southgate Complex. This was partially offset by stronger operating performance at MBFC properties and One Raffles Quay.
  • Total distributable income was 19.1% lower to $206.8m (FY2022: $255.5m) as a result of higher financing costs arising from higher interest rates, a weaker Australian dollar against the Singapore dollar, and higher maintenance fund contribution in 2023.
  • Distribution per unit (DPU) was down 17.1% to 7.135 cents/unit (FY2022: 8.885 cents/unit).

Performance of Properties:

  • Singapore Office: Achieved 22 consecutive quarters of positive rental reversion, with the last 5 quarters recording double-digit figures; Committed occupancy at 99.7%, above the market occupancy of 94.8% for Core CBD offices.
  • Australian Portfolio: Committed occupancy at 88.6%, higher than nationwide CBD office occupancy of 85.1%; The decline in the occupancy of 55 Currie Street to 56.2% was due to the exit of an anchor tenant; Asset enhancement works to revitalise and elevate the office environment of 55 Currie Street and 177 Pacific Highway were completed and well-received by office tenants.
  • United Kingdom Office: Committed occupancy at Nova Properties was unchanged at 100.0%, while committed occupancy at The Minster Building dipped to 87.3% due to the exit of a key co-working tenant.
  • Suntec City Mall: Attained 7 consecutive quarters of positive rent reversion, and achieved a strong full-year rent reversion of more than 20% in FY2023; Mall traffic grew 8% to over 40 million, while tenant sales increased further by 4%, comparable to the steady stead growth the REIT enjoyed pre-Covid; Committed occupancy was at 95.6% due to the exit of 2 anchor fitness tenants.
  • Suntec Singapore: Both revenue and income surpassed pre-Covid levels in FY2023; Strong performance of the convention business has allowed the REIT to resume dividend contributions from Q3 FY2023.

Balance Sheet Strength:

  • Aggregate leverage was at 42.3%, while the average financing cost was 3.84% per annum with approximately 61% of the debt fixed or hedged.
  • To further strengthen the its balance sheet, the REIT have divested a total of $94.4m of strata units at Suntec City Office Towers at an average price of 31% above book value – proceeds will be used to pare down debt; transactions are expected to be accretive to the REIT’s earnings as the assets were divested at a yield lower than the current borrowing costs.

Sustainability Efforts:

  • Attained the highest GRESB 5 Star rating for the 4th consecutive year since its inaugural participation in 2020, as well as being awarded an ‘A’ for its public disclosure.
  • In-line with its commitment towards sustainable growth, the REIT has secured 3 sustainability-linked loan facilities totalling $780m in 2023.
  • As at 31 December 2023, 50% of the REIT’s debts were green or sustainability-linked loans.
  • A sustainability roadmap has also been put in place to guide the REIT in achieving its target of net-zero carbon emission by 2050, with a medium term target set to achieve net-zero carbon emission for fully owned assets by 2030.

Outlook Ahead:

  • Singapore Offices: Rent growth expected to moderate as a result of geopolitical tensions and economic headwinds, though rental reversion will remain positive. Revenue from Singapore offices is expected to continue to strengthen on the back of high occupancies and past quarters of positive rent reversions.
  • Suntec City Mall: Tenant sales expected to remain above pre-Covid levels, while rental reversion is expected to be positive as a result of the continued recovery of tourism in Singapore. Revenue from retail mall is expected to improve, underpinned by higher occupancy, rent, and marcoms revenue.
  • Suntec Singapore: Singapore’s MICE (Meetings, Incentives, Conventions, and Exhibitions) industry will continue to drive and benefit from the country’s tourism recovery. As such, higher dividend contributions is expected as its convention business continues to grow.
  • Australian Assets: Expected to deliver stable returns. Portfolio expected to be impacted by the leasing downtime of vacancies at 55 Currie Street and Southgate Complex. Higher incentives seen in Adelaide and Melbourne will also affect the revenue performance of the 2 properties.
  • United Kingdom Offices: Revenue will remain resilient, but it will be impacted by the leasing downtime as a result of vacancies at The Minster Building.
  • In 2024, the REIT’s management will continue with their pro-active asset management strategy of divesting mature assets and strata units at Suntec City office to deliver long-term value to its unitholders.

Details of Suntec REIT’s Annual General Meeting (AGM)

When? Thursday, 18 April 2024
Time? 2.30pm
Where? Level 3 Summit 1, Suntec Convention & Exhibition Centre, 1 Raffles Boulevard, Suntec City, Singapore 039593

Unitholders whose units of the REIT are held in your custodian account need not pre-register to attend the meeting, a verification will be done on the day itself at the meeting venue. For unitholders whose units are held in a custodian account, then you will need to contact your brokerage to indicate your interest to attend the meeting, who will then appoint you to attend as a proxy.

There will be no options for unitholders to join the meeting virtually.

Questions, you may submit them to srs.teamd@boardroomlimited.com by 2.30pm on Friday, 05 April 2024. I have submitted a total of 4 questions, and they are as follows:

(i) May I know the effect of the $94.4m divestment of strata units at Suntec City Office Towers on the REIT’s gross revenue and DPU?

(ii) On Page 11 of the annual report, it is stated that the REIT intends to “divest mature assets and strata units at Suntec City office to deliver long-term value to our unitholders.” May I know which assets are being considered for divestment? Additionally, can the REIT provide estimates on how the divestiture of these properties might affect the DPU due to the potential decrease in revenue contributions?

(iii) What is the aggregate leverage ratio the management of the REIT is intending to reach, and is there a specific timeline by when this goal must be achieved?

(iv) Are there any recent developments regarding the occupancy of 55 Currie Street, which is currently at 56.2% following the departure of an anchor tenant, and The Minster Building, where the occupancy rate has fallen to 87.3% as a result of a key co-working tenant leaving?

[Update on 15 April 2024: The REIT’s management have published their responses to substantial and relevant questions submitted by unitholders, and you can read about them in the PDF here.]

Closing Thoughts

Some of the headwinds the REIT is faced with include its debt profile (where it has been hoovering very close to the regulatory level since interest rates started to spike in 2022), along with filling up vacant office spaces in its office properties in Australia (namely 55 Currie Street, where its occupancy as at 31 December 2023 was at a low of 56.3%) – both issues I have already submitted relevant questions to seek updates from the management.

Looking at the year ahead, with the US Federal Reserve signalling a total of 3 interest rate cuts in 2024, and further rate cuts (unknown at this point how many more cuts the US Federal Reserve will cut) in 2025 and 2026, I’m of the opinion that Suntec REIT will be among the first to benefit due to it having just 60+% of borrowings hedged at fixed rates – the lower borrowing costs will definitely help to bump up its DPU, assuming all else remains the same. Another catalyst to the REIT’s DPU will be the filling of vacant space in 55 Currie Street in Australia.

Due to time constraints, I will not be attending the REIT’s upcoming AGM.

With that, I have come to the end of my summary of Suntec REIT’s latest annual report for FY2023. As always, I hope you have found the information presented in this post useful. At the same time, do take note that the opinions I have shared in this post are purely for educational purposes only. You should always do your own due diligence before you make any investment decisions.

Related Documents

Disclaimer: At the time of writing, I am a unitholder of Suntec REIT.

Are You Worried about Not Having Enough Money for Retirement?

You're not alone. According to the OCBC Financial Wellness Index, only 62% of people in their 20s and 56% of people in their 30s are confident that they will have enough money to retire.

But there is still time to take action. One way to ensure that you have a comfortable retirement is to invest in real estate investment trusts (REITs).

In 'Building Your REIT-irement Portfolio' which I've authored, you will learn everything you need to know to build a successful REIT investment portfolio, including a list of 9 things to look at to determine whether a REIT is worthy of your investment, 1 simple method to help you maximise your returns from your REIT investment, 4 signs of 'red flags' to look out for and what you can do as a shareholder, and more!

Get Your Copy of building Your REIT-irement Portfolio Here

You can find out more about the book, and grab your copy (ebook or physical book) here...