Listed on the Singapore Exchange since December 2004, Suntec REIT (SGX: T82U) invests in income producing real estate that is primarily used for retail and/or office purposes.

Currently, its portfolio comprises of properties worth over S$12 billion in Singapore, key Australian cities of Sydney, Melbourne, and Adelaide, as well as in London, United Kingdom, as follows:

Singapore:

  • Suntec City
  • 66.3% interest in Suntec Singapore Convention & Exhibition Centre
  • 1/3 interest in One Raffles Quay, Marina Bay Financial Centre Towers 1 &2, and Marina Bay Link Mall

Australia:

  • 177 Pacific Highway (Sydney)
  • 21 Harris Street (Sydney)
  • 50% interest in Southgate Complex, and Olderfleet, 477 Collins Street (Melbourne)
  • 55 Currie Street (Adelaide)

United Kingdom:

  • 50% interest in Nova Properties (London)
  • The Minster Building (London)

Following the conclusion of its financial year ended 31 December 2024 (i.e., FY2024), Suntec REIT published its latest annual report 2024 on Tuesday (25 March) and for those of you who do not have time to go through it, you can find key pointers to take note in this post, together with details of the REIT’s upcoming annual general meeting (AGM).

But before I go into them, I’ll be sharing clarifications that I’ve gotten from the REIT’s management on 2 issues – first is expected decline in the REIT’s distribution payout in the financial year ahead as a result of the removal of concessionary withholding tax on its distributions in Australia, and second is the REIT’s growth plans in the financial year ahead:

Expected Decline in the REIT’s Distribution Payout in FY2025, and Growth Plans Ahead

One of the key developments surrounding the REIT in recent months was a mandatory conditional cash offer made by Aelios, controlled by Gordon Tang, to acquire all of Suntec REIT’s units – the initial offer on 05 December 2024 was at S$1.16 apiece, but it was raised to S$1.19 per unit on 08 January 2025. However, the offer lapsed on 07 February 2025 as it failed to secure the required 50% acceptance threshold.

Also, in an announcement on 10 February 2025 published on SGXNet, it stated that as Gordon and Celine Tang each held more than 10% of the REIT’s units, the REIT will no longer be eligible for concessionary withholding tax rate of 10%, and its distributions from Australia must now be subjected to an effective Australian tax rate of 30%. As a result of this, the REIT’s distribution per unit is expected to decline from S$0.06192 cents to S$0.06055 cents on a pro-forma basis (you can read the announcement in full here.)

With that in mind, I have sought more information on the rationale behind the decision of both Gordon and Celine Tang to increase their unitholding beyond the 10% threshold, considering the move will result in a decline in distribution for all unitholders in FY2025, as well as how REIT intends to mitigate the impact of this development on unitholders. While the REIT was not able to comment on the former on behalf of both Gordon and Celine Tang, on the latter, the REIT’s management is currently working with the tax consultants on options available to mitigate the impact on unitholders.

Additionally, I’ve asked about the REIT’s growth plans, considering its most recent acquisition was in back July 2021 (which was the acquisition of a 100% interest in The Minster Building in London). On this, the REIT’s management shared that the current focus is on the divestment of units in Suntec City Office Towers as the yield is lower than the current borrowing cost. However, they are consistently evaluating opportunities in terms of acquisitions and will update unitholders if the right opportunity comes along.

Key Highlights of Suntec REIT’s Annual Report

FY2024 Performance Highlights:

  • Gross revenue increased marginally by 0.2% year on year to S$463.6 million, with income contributions from joint ventures increased by 6.4% year on year to S$100.0 million, led by improvements in the performance of its Singapore office and retail portfolios, as well as the Sydney properties. However, this was partially offset by vacancies in 55 Currie Street and The Minster Building.
  • Net property income saw a slight decrease of 0.8% year on year to S$310.8 million, as the higher revenue attained was offset by the absence of one-off property tax refund at Suntec City Mall.
  • Distributable income was down by 12.5% year on year to S$180.9 million, as a result of the completion of capital distribution of S$23 million in 2023, and higher financing cost arising from higher interest rates.
  • Distribution per unit fell by 13.2% year on year to S$0.06192.
  • Portfolio occupancy is as follows: 97.9% for its retail properties, and 95.4% for its office properties.
  • Total assets under management (AUM) recorded a slight decline of 0.8% year on year to S$12.1 billion (out of which, 77.9% of its AUM is in Singapore, with the remaining 12.4% and 9.7% in Australia and the United Kingdom respectively), mainly due to lower property values in Australia and the United Kingdom due to the expansion of capitalisation rates, partly mitigated by the uplift in the valuation of the Singapore properties as a result of better performing performance.
  • Aggregate leverage is at 42.4%, with all-in financing cost at 4.06% per annum, and approximately 58% of debt fixed or hedged.

Asset Enhancement Works:

  • In Singapore, particularly in One Raffles Quay, the Garden Plaza and main lobbies at North and South Tower have undergone asset enhancement to elevate the arrival experience. This is on top of additional food and beverage offerings being introduced.
  • In Australia, the REIT have completed asset enhancement works at 55 Currie Street and 177 Pacific Highway to revitalise workspaces and elevate office environments.

Progress on ESG Journey:

  • Attained the highest GRESB 5 Star Rating for the 5th consecutive year since the REIT’s inaugural participation in 2020, as well as maintained an ‘A’ rating for its public disclosure.
  • In 2024, 21 Harris Street achieved carbon neutral status, one year ahead of schedule.
  • Approximately 70% of the REIT’s debts are in green or sustainability-linked loans as at end-December 2024.

Looking Ahead:

  • Singapore Office: Positive rental reversion within a modest range of 1-5% is expected to continue, with revenue strengthening on the back of past quarters of positive rental reversion and healthy occupancies.
  • Singapore Retail: Rental reversions in Suntec City Mall expected to be in the range of 10-15% with high occupancy of more than 95%.
  • Suntec Convention: Performance expected to be stable with the composition of event types likely to remain largely unchanged.
  • Australian Portfolio: Expected to remain stable supported by healthy occupancies of Sydney and Melbourne properties; However, vacancy at 55 Currie Street is likely to increase due to weak market demand in Adelaide.
  • United Kingdom Portfolio: Expected to remain stable underpinned by high occupancy and long weighted average lease expiry. However, leasing downtime from The Minster Building is expected to impact the portfolio performance.
  • Capital Management: All-in financing cost expected to increase by 10-20 basis points as interest rate hedges that are expiring in the year were secured at significantly lower rates.

Details of Suntec REIT’s AGM

When? Thursday, 17 April 2025
Where? Level 3 Summit 1, Suntec Singapore Convention & Exhibition Centre, 1 Raffles Boulevard, Suntec City, Singapore 039593
Time? 2.30pm

The meeting will be held in a wholly physical format, with no options for unitholders to attend virtually.

Unitholders whose units are held in a CDP account need not pre-register, as verification will be done at the event venue on the date itself. For unitholders whose units are held in a custodian account, you will need to inform your brokerage your interest in attending the meeting, and they will appoint you to do so as a proxy.

Closing Thoughts

While the REIT’s portfolio occupancy for its properties continue to be resilient (where most of them have an occupancy rate of above 90%), and outlook ahead looks bright, but I’m of the opinion that its distribution payout to unitholders will continue to decline in 2025 (if this happens, it will be the 3rd straight year in which the REIT’s distribution payout have suffered a year-on-year decline) due to higher financing costs (the REIT’s management guided that all-in financing cost is expected to increase by another 10-20 basis points), and also that distributions from Australia are being subjected to a 30% tax rate as the REIT is no longer be eligible for concessionary withholding tax rate of 10%.

In relation to the REIT’s upcoming AGM, I’ve also submitted the following 2 questions to seek the management’s clarification (if you have any questions, you can also submit them to srs.teamd@boardroomlimited.com before 2.30pm on Friday, 04 April 2025):

1. I note that asset enhancement works in 55 Currie Street and 177 Pacific Highway to revitalise the workspaces and elevate the office environment have been completed (in Page 24 of the annual report). May I ask if the works are DPU accretive. If so, may I know what the yield is?

2. On the issue of a potential DPU decline as a result of the REIT being no longer eligible for any concessionary withholding tax on distributions from Australia, I understand through our last communication in February 2025 that the management is currently working with the tax consultants on options available to mitigate impact to unitholders. May I know if there are any updates that can be provided on this issue? If not, may I know if there is a timeline with which unitholders can expect, considering the REIT will be reporting its results for 1Q 2025 sometime in end-April, with distribution payouts to be reported.

I will keep a close watch on the issues at hand – its debt profile, and also the decline in its distribution payout to unitholders, and continue to seek clarifications from the REIT’s management as and when necessary, and provide updates to the community (so fellow unitholders can also stay abreast with the latest developments).

With that, I have come to the end of my summary of the key pointers to take note in Suntec REIT’s latest annual report 2024. Please note that all opinions expressed in this post are for educational purposes only, and they do not constitute any buy or sell calls for the REIT. You should always do your own due diligence before making any investment decisions.

Related Documents

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

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