CGS International

April 28, 2025

Suntec REIT: Strong Singapore Assets Underpin Hold Rating Despite DPU Forecast Revision

Suntec REIT 1Q25 Performance: Key Highlights

• Suntec REIT (SUN) reported a 4.3% year-over-year increase in 1Q25 distributable income, reaching S\$45.9 million. [[1]]
• This translates to a distribution per unit (DPU) of 1.563 Singapore cents, a 3.4% year-over-year increase. [[1]]
• The improved performance is attributed to better operating results across most properties, with the exception of 55 Currie St in Adelaide. [[1]]
• Lower financing costs also contributed to the positive results, although this was partially offset by higher withholding tax provisions in Australia due to the loss of Managed Investment Trust (MIT) status in 2025F. [[1]]
• Aggregate leverage for Suntec REIT stood at 43.4% at the end of 1Q25, while all-in financing costs decreased by 10 basis points quarter-over-quarter to 3.96%. [[1]]
• Suntec REIT has completed refinancing S\$730 million worth of Australian dollar (A\$) and British pound (£) loans due in 2025F and 2026F, which is expected to result in annual interest savings of S\$1.8 million. [[1]]

FY25F Reversion Guidance Maintained for Singapore Office and Retail

• Management maintains a positive rent reversion guidance of +1-5% for Singapore office space in FY25F. [[1]]
• Singapore office committed occupancy remains strong at 98.7% at the end of 1Q25. [[2]]
• The portfolio benefitted from an +8% rental reversion during the quarter (Suntec Office +5.5%) on 213,000 sq ft of leased space. [[2]]
• Despite maintaining guidance, management indicated caution due to weaker business sentiment amid a softer global macro outlook, given average expiring rents of S\$10.21 psf at Suntec Office. [[2]]
• Committed office occupancy for the Australia portfolio remained stable quarter-over-quarter at 90.9% in 1Q25. [[2]]
• The office leasing environment in Adelaide is expected to remain challenging in FY25F due to elevated vacancy levels. [[2]]
• The UK office portfolio occupancy stood at 95.3% in 1Q25, with 3% of UK leases expiring in 9M25F. Renewals are expected to remain positive in 2025F. [[2]]

Robust FY25F Performance Expected for Suntec Retail

• Suntec Mall’s occupancy stood at 98.2% at the end of 1Q25, with a robust rent reversion of +10.4%. [[2]]
• Shopper traffic and tenant sales both decreased by 3% year-over-year in 1Q25. [[3]]
• Management anticipates Suntec Mall will continue to benefit from positive rental reversions of +5-10% in FY25F. [[3]]
• Suntec Convention’s net property income (NPI) surged 176.9% year-over-year to S\$3.6 million in 1Q25, driven by greater revenue from MICE events and improved margins due to higher-yielding events and lower utility rates. [[3]]

Revised DPU Forecast and Hold Rating

• FY25-27F DPU forecasts have been lowered by 2.1-3.67% to incorporate a higher effective tax rate for the Australia portfolio and updates from the FY24 annual report. [[3]]
• A Hold rating is maintained due to limited near-term upside, with a reduced DDM-based target price of S\$1.26 (COE: 8.43%). [[3]]
• Key upside risks include faster balance sheet strengthening through capital recycling activities, a quicker decline in effective funding costs, and accelerated backfilling of occupancies at overseas properties. [[3]]
• Downside risks include higher-than-expected interest rate hikes and a prolonged weak macro outlook that could dampen demand for office space. [[3]]

Key Changes in This Note

• FY25F DPU decreased by 2.1%. [[3]]
• FY26F DPU decreased by 2.7%. [[3]]
• FY27F DPU decreased by 3.67%. [[3]]

Shareholder Information and Analyst Details

• Major shareholders include The Straits Trading Company (8.0%) and Blackrock (5.0%). [[3]]
• Analysts covering the report are LOCK Mun Yee and LI Jialin. [[3]]

Financial Summary

Key financial data from Dec-23A to Dec-27F (S\$m): [[3], [4]]

Key Earnings Revisions

Summary of previous vs new forecasts (S\$m): [[2]]

SREIT Peer Comparison

Peer analysis as of April 25, 2025: [[2]]

ESG Analysis

LSEG ESG Scores

• Suntec REIT received a C+ ESG Combined Score for FY23 from LSEG. [[3]]
• The Environmental pillar is rated B-, Social at C, and Governance at C. [[3]]
• The ESG controversies score remained strong at A+. [[3]]
• Suntec REIT aims to achieve carbon neutral status for all Australia and UK assets and net zero carbon status for assets with full ownership control by 2030F. [[3]]
• The goal is to achieve net zero carbon status (including Scope 3 emissions) for all assets in the portfolio by 2050F. [[3]]
• Near-term targets include reducing energy intensity by 3% in FY24F from FY19 and maintaining water intensity over the same period. [[3]]
• Suntec REIT achieved the highest 5-star rating in its GRESB submission in 2023 and was awarded the GRESB ‘A’ for public disclosure. [[3]]
• 477 Collins St and Nova Properties achieved WELL Platinum Certification, while 21 Harris St, 477 Collins St, Nova Properties, and The Minster Building are using 100% renewable energy. [[3]]
• As of June 2024, approximately 70% of its debt comprises green or sustainability-linked loans. [[3]]

Areas for Improvement

• Suntec REIT’s Governance pillar is ranked at C, and its environmental innovation rating is low at D+. [[3]]
• An improvement in the Governance pillar could boost its overall ESG score. [[3]]

ESG Highlights

• Suntec REIT ranks 77th out of 104 Singapore companies and 23rd of 26 Singapore real estate peers based on LSEG data. [[3]]
• FY23 ESG highlights include achieving carbon neutral status for 177 Pacific Highway and 55 Currie St and obtaining a ‘B’ EPC Energy Rating for The Minster Building. [[3]]
• Upgrades to the Building Management System for 55 Currie and Southgate Complex and cyclical replacement of Air Handling Units at Suntec Office Towers and One Raffles Quay were conducted in FY23. [[3]]
• Social initiatives included a toy collection drive at Suntec City for the Food from the Heart Toy Buffet Carnival and a donation drive at Suntec City for the Lee Kuan Yew Centennial Fund. [[3]]

ESG Trends and Implications

• Suntec REIT’s ESG rating of C has remained unchanged from 2019-2023, while its Environmental and Governance ratings have weakened. [[3]]
• Continued efforts in ESG could lead to improved operational efficiencies and financial performance. [[3]]

Financial Performance and Key Ratios

Key financial ratios and drivers: [[5]]