Suntec REIT Review @ 23 July 2021

Basic Profile & Key Statistics

Suntec REIT invests in Office, Retail and Convention Centre properties and owns 10 properties across Singapore, Australia and England.

Performance Highlight

Gross revenue and NPI increase due to contribution from Oldersleet, 21 Harris Street, stronger AUD, and higher revenue from Suntec City. Income from JV increases due to contribution from Nova properties, one-off compensation from ORQ & MBFC, higher contribution from Southgate and strong AUD.

Excluding the retained distribution, the distribution income and DPU increased by 27.4% and 26.1% respectively.

1H 21 rental reversion is +1% for Suntec City Office and -15.3% for Suntec City Retail.

Tenant Sales and footfall (compared to 2019) drop in May and June due to dining restriction during phase 2 and phase 3 heightened alerts. Tenant sales (whole mall) in 1H decrease by 20% despite -42% drop in footfall.   

On 16 Jun 21, Suntec announced for divestment of 9 Penang Road with a gain of S$ 66.5 million.

Within 2 weeks from the previous divestment, Suntec announced for divestment of Suntec City Office Strata Units and the acquisition of The Minster Building in London on 29 Jun 21. The expected completion for divestment is in 3Q 2021 with a gain of S$ 13.9 million. 

This is the second acquisition for U.K. property which is funded by a combination of divestment proceeds, loan and perpetual securities. It is expected to be 3.6% DPU accretion and expected to complete in July 2021. 

Related Parties Shareholding

• There is no official sponsor mentioned in Annual Report
• REIT manager's shareholding is high at 1.45%
• Directors of REIT manager's shareholding is high at 8.23%

Lease Profile

• Occupancy is moderate at 94.7%
• WALE is moderate at 4.09 years
• Highest lease expiry within 5 years is slightly low at 23.9% which falls in 2023
• Weighted average land lease expiry is slightly long at 75.25 years

Debt Profile

• Gearing ratio is high at 43.1%
• Cost of debt is moderate at 2.41%
• Fixed rate debt % is low at 64%
• Unsecured debt % is low at 61.3%
• WADM is moderate at 2.99 years
• Highest debt maturity within 5 years is low at 20% which falls in 2023
• Interest coverage ratio is low at 2.8 times
• Preferred/perpetual securities over debt is moderate at 6.7%

Diversification Profile

• Top geographical contribution is high at 70.4%
• Top property contribution is high at 44.8%
• Top 5 properties contribution is high at 87%
• Top tenant contribution is low at 6.4% 
• Top 10 tenants contribution is low at 30.6%

Key Financial Metrics

• Property yield is low at 2.8% 
• Management fees over distribution is high at 23.4% in which unitholders receive S$ 4.27 for every dollar paid 
• Distribution on capital is low at 2.2%
• Distribution margin is slightly high at 52.9%
• 5.9% of TTM distribution is from income support

Trends

• Flat - NAV per Unit
• Slight Downtrend - Distribution Margin
• Downtrend - DPU, Interest Coverage Ratio, Property Yield, Distribution on Capital

Relative Valuation

• P/NAV is at the average level for 1y, lower than the average for 3y; lower than -1SD for 5y
• Dividend yield is at the average level for 5y; higher than average for 3y; higher than +1SD for 1y 

Author's Opinion

Favorable	Less Favorable
Diversified Sector	High Gearing Ratio
High REIT manager's Shareholding	Low Fixed Rate Debt %
High Directors of REIT manager's Shareholding	Low Unsecured Debt %
Well Spread Debt Maturity	Low Interest Coverage Ratio
Low Top Tenant & Top 10 Tenants Contributions	High Top Geographical Contribution
	High Top Property & Top 10 Properties Contributions
	Low Property Yield
	Non-Competitive Management Fees
	Low Distribution on Capital
	DPU Downtrend
	Interest Coverage Ratio Downtrend
	Property Yield Downtrend
	Distribution on Capital Downtrend

Suntec has progressively diversified away from Singapore by acquiring Australia and U.K. properties. All these acquisitions have cushioned the recent income drop in Suntec City. However, as Singapore is moving back to phase 2 heightened alert from 20 July until 18 August, the upcoming performance of Suntec City is expected to be affected again. Hopefully, it would not be extended. 

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*Disclaimer: Materials in this blog are based on my research and opinion which I don't guarantee accuracy, completeness, and reliability. It should not be taken as financial advice or a statement of fact. I shall not be held liable for errors, omissions and loss or damage as a result of the use of the material in this blog. Under no circumstances does the information presented on this blog represent a buy, sell, or hold recommendation on any security, please always do your own due diligence before any decision is made.