Suntec REIT is a Singapore-listed REIT that owns a portfolio of retail mails and office buildings situated in Singapore, Australia, and the United Kingdom. Among Suntec REIT’s renowned properties in Singapore are One Raffles Quay, Marina Bay Financial Centre (MBFC) Towers 1 and 2, and, of course, Suntec City. As of 31 December 2022, the REIT’s assets under management were S$12.3 billion.
To learn more about Suntec REIT’s past year’s performance and outlook ahead, I attended its recent annual general meeting. Here are the seven things I learned from the 2023 Suntec REIT AGM.
1. Gross revenue grew 19.3% year-on-year to S$427.3 million in FY2022 and net property income (NPI) rose 24% to S$315.8 million. Growth was mainly attributed to higher contributions from Suntec City Office and Suntec City Mall due to higher occupancy and rent. Suntec REIT also recorded higher revenue from Suntec Convention; 21 Harris Street; Olderfleet, 477 Collins Street; as well as the full-year contribution from The Minster Building in London. Suntec City remains the REIT’s largest NPI contributor at 43%.
2. Distributable income increased 3.4% year-on-year to S$255.5 million and distribution per unit grew 2.5% to 8.884 cents. The rise was primarily a result of the recommencement of capital distribution amounting to S$23 million that had been suspended during the pandemic. Based on Suntec REIT’s last closing price of $1.43, its expected distribution yield is 6.21%.
3. Suntec REIT posted strong overall occupancy rates of 98.3% and 97.5% for its office and retail segments respectively. Overall office and retail portfolio WALE is at 4.5 years and 2.4 years respectively. Its Singapore office portfolio achieved an overall committed occupancy of 98.5%, higher than the overall Singapore core CBD occupancy of 94.7%. Its Singapore retail portfolio stands at an overall committed occupancy of 98.1%.
According to CEO Chong Kee Hiong, the outlook for the Singapore office market is expected to soften due to slowdown in demand. At the same time, it is anticipated that rents will stabilize rather than decline due to the limited office supply in Singapore. The management believes that rent reversions will remain positive, and revenue will strengthen from the previous quarter.
4. Tenant sales at Suntec City Mall have surpassed pre-pandemic levels since April 2022, when safe management measures were significantly eased. This is despite only an 84% recovery in mall traffic compared to 2019.
Moving forward, retail sales are expected to slow amidst weaker GDP growth this year, but the ongoing recovery of international MICE (Meetings, Incentives, Conferences and Exhibitions) and tourism is anticipated to bolster traffic and tenant sales.
5. Suntec REIT’s leverage ratio decreased from 43.7% in FY2021 to 42.4% in FY2022. Average cost of debt is 2.94% and weighted average interest maturity is 2.38 years. Net asset value per share is S$2.12. Among Singapore REITs, Suntec REIT has one of the highest gearing ratios.
6. A unitholder expressed his concerns regarding Suntec REIT’s leverage ratio which is close to the regulatory limit. In response, the CEO explained that if their leverage ratio exceeds the limit, the only negative implication is that Suntec REIT will not be able to borrow more capital. However, for that to happen, its property portfolio would have to suffer another S$700 million decline in valuation – which is a highly unlikely event.
Moving forward, a comfortable leverage ratio for Suntec REIT would range from 40% to 42%. However, with the current high interest rate environment, the management is working towards achieving a ratio of below 40%. To achieve it, unitholders can expect the REIT to divest mature assets — classified as those with limited rental upside in the short to medium term.
7. In view of the fierce competition from other malls in Singapore, a unitholder asked about Suntec City’s competitive edge. In response to this, the management mentioned that one of the advantages comes from its car park of over 3,000 lots, which is hard to find in the city area. The mall is currently attracts around 45 million people a year, supported by office crowds on weekdays as well as events on weekends. The management also expects Suntec to become even more vibrant when nearby developments like Shaw Tower and Guoco Midtown are completed. The new developments will be linked to Suntec City via overhead bridges.
The fifth perspective
Suntec REIT’s properties are situated in prime locations, making it highly sought after for retail and office tenants alike. With its plans to improve its assets and facilities, Suntec REIT is in a strong position to enjoy continued growth despite near-term macroeconomic uncertainties.
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