CGS International April 28, 2025 Suntec REIT: Strong Singapore Assets Underpin Hold Rating Suntec REIT 1Q25 Performance Suntec REIT (SUN) reported a 4.3% year-over-year increase in 1Q25 distributable income, reaching S\$45.9 million. This translates to a DPU of 1.563 Singapore cents, a 3.4% year-over-year increase. [[1]] The improvement is attributed to enhanced operating performance across its properties, excluding 55 Currie St in Adelaide. Lower financing costs also contributed positively. These gains were partially offset by higher withholding tax provisions in Australia due to the loss of Managed Investment Trust (MIT) status in 2025F. [[1]] Aggregate leverage 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 refinanced S\$730 million worth of Australian dollar and British pound loans due in 2025F and 2026F, which management expects will result in annual interest savings of S\$1.8 million. [[1]] FY25F Reversion Guidance for Singapore Office Suntec REIT maintained its FY25F reversion guidance of +1-5% for its Singapore office portfolio. [[1]] Committed occupancy for Singapore offices was healthy at 98.7% at the end of 1Q25. [[2]] The portfolio benefited from an 8% rental reversion during the quarter (Suntec Office +5.5%) on 213,000 square feet of leased space. [[2]] Despite maintaining a positive rent reversion outlook of 1-5% for FY25F, 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]] Australian and UK Office Portfolio Update 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 high vacancy levels. [[2]] The UK office portfolio reported occupancy of 95.3% in 1Q25. [[2]] 3% of UK leases are expiring in 9M25F, and management anticipates renewals to remain positive in 2025F. [[2]] Suntec Retail: Robust FY25F Performance Expected Suntec Mall’s occupancy stood at 98.2% at the end of 1Q25, with a robust rent reversion of +10.4%. [[3]] Shopper traffic and tenant sales both decreased by 3% year-over-year in 1Q25. [[3]] Management has guided for Suntec Mall to continue benefiting from positive rental reversions of +5-10% in FY25F. [[3]] Suntec Convention 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 utilities rates. [[3]] Maintain Hold Rating with Reduced Target Price FY25-27F DPU forecasts have been lowered by 2.1-3.67% to factor in a higher effective tax rate for the Australia portfolio and updates from the FY24 annual report. [[3]] The 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 Risks and Upsides Upside risks include faster strengthening of the balance sheet through capital recycling or a quicker-than-projected decline in effective funding costs, as well as faster backfilling of occupancies at overseas properties. [[3]] Downside risks include higher-than-expected interest rate hikes and a protracted weak macro outlook that could dampen demand for office space. [[4]] Analyst Information LOCK Mun Yee T (65) 6210 8606 E munyee.lock@cgsi.com [[4]] LI Jialin T (65) 6210 8663 E jialin.li@cgsi.com [[4]] Financial Summary (S\$m) Dec-23A Dec-24A Dec-25F Dec-26F Dec-27F Gross Property Revenue 462.7 463.6 466.6 477.7 492.0 Net Property Income 313.2 310.8 316.8 323.2 332.0 Net Profit 231.6 139.4 181.2 194.6 206.2 Distributable Profit 206.8 180.9 185.1 197.8 208.6 Core EPS (S\$) 0.043 0.058 0.062 0.066 0.069 Core EPS Growth (51.8%) 33.9% 6.4% 6.7% 5.2% FD Core P/E (x) 26.61 19.88 18.68 17.50 16.63 DPS (S\$) 0.071 0.062 0.063 0.067 0.070 Dividend Yield 6.20% 5.38% 5.45% 5.79% 6.06% Asset Leverage 38.9% 34.2% 34.0% 34.0% 33.9% BVPS (S\$) 2.10 1.87 1.87 1.87 1.87 P/BV (x) 0.55 0.61 0.62 0.62 0.62 Recurring ROE 2.05% 2.92% 3.29% 3.52% 3.70% % Change In DPS Estimates (2.10%) (2.70%) (3.67%) DPS/Consensus DPS (x) 1.00 0.98 1.00 Key Changes in this Note FY25F DPU decreased by 2.1%. [[4]] FY26F DPU decreased by 2.7%. [[4]] FY27F DPU decreased by 3.67%. [[4]] Price Performance 1 Month: Absolute (%) -0.9, Relative (%) 2.9 [[4]] 3 Months: Absolute (%) -5.0, Relative (%) -6.3 [[4]] 12 Months: Absolute (%) 4.5, Relative (%) -21.7 [[4]] Major Shareholders (% held) The Straits Trading Company 8.0 [[4]] Blackrock 5.0 [[4]] Peer Comparison Table Sector Bloomberg Ticker Recommendation Price (LC) as at 25 Apr 25 Target Price (LC) (DDM-based) Mkt Cap (US \$m) Last reported asset leverage Stated NAV Price / NAV Dividend Yield (%) FY25F Dividend Yield (%) FY26F Dividend Yield (%) FY27F Hospitality CLAS SP Add 1.13 1.15 \$2,479 38.3% 0.74 1.53 7.1% 7.4% 7.4% Hospitality CDREIT SP Add 1.07 1.48 \$764 38.8% 0.54 2.01 7.4% 8.0% 8.2% Hospitality FEHT SP Add 0.75 0.92 \$859 30.8% 0.61 1.23 7.2% 7.1% 7.0% Hospitality FHT SP NR NA 0.64 \$773 35.0% 0.95 0.64 4.1% 4.4% 4.8% Industrial AAREIT SP NR NA 1.26 \$754 33.7% 0.99 1.27 7.4% 7.3% 7.5% Industrial CLAR SP Add 3.10 2.20 \$8,903 37.7% 1.21 2.56 5.8% 6.0% 6.1% Industrial EREIT SP Add 0.36 0.28 \$1,280 42.8% 0.76 0.47 10.3% 10.8% 10.9% Industrial FLT SP Add 1.35 1.13 \$2,547 36.2% 0.79 1.71 7.5% 7.7% 7.5% Industrial KDCREIT SP Add 2.48 1.53 \$3,569 30.2% 1.36 1.53 4.8% 5.0% 5.1% Industrial MINT SP Add 2.82 1.74 \$4,402 39.8% 1.17 2.41 6.9% 7.0% 7.1% Industrial MLT SP Add 1.63 1.31 \$4,355 40.7% 0.86 1.90 7.1% 6.6% 6.6% Industrial SERT SP Add 1.92 1.33 \$923 40.2% 1.09 1.33 8.8% 9.0% 8.8% Industrial SSREIT SP NR NA 0.50 \$291 37.4% 0.72 0.50 0.0% 0.0% 0.0% Office KREIT SP Add 1.08 1.24 \$2,488 42.1% 0.68 1.25 6.4% 6.8% 6.9% Office OUEREIT SP Add 0.33 0.59 \$1,150 40.6% 0.47 0.70 7.3% 7.7% 8.1% Office SUN SP Hold 1.15 2.01 \$2,566 43.4% 0.57 2.01 5.5% 5.8% 6.1% Retail CICT SP Add 2.45 2.09 \$11,906 38.7% 1.02 2.05 5.2% 5.5% 5.7% Retail FCT SP Add 2.68 2.23 \$3,460 39.3% 1.01 2.21 5.4% 5.5% 5.6% Retail LREIT SP Add 0.69 0.74 \$958 40.8% 0.70 1.06 7.7% 7.7% 7.8% Retail MPACT SP Add 1.48 1.78 \$4,888 37.7% 0.69 2.14 6.6% 6.8% 7.0% Retail PGNREIT SP Hold 0.98 0.92 \$2,095 35.3% 1.06 0.87 5.2% 5.4% 5.6% Retail SGREIT SP Add 0.60 0.69 \$847 36.2% 0.70 0.86 7.4% 7.5% 7.6% Overseas-centric CLCT SP NR NA 1.09 \$916 42.6% 0.63 1.09 8.4% 8.5% 8.6% Overseas-centric ELITE SP Add 0.35 0.39 \$228 45.5% 0.74 0.39 10.1% 10.1% 10.2% Overseas-centric MUST SP Add 0.13 0.23 \$117 60.8% 0.29 0.24 0.0% 41.8% 48.5% Overseas-centric SASSR SP Add 0.85 0.83 \$611 24.8% 0.77 0.83 9.6% 9.9% 10.3% Healthcare PREIT SP Add 4.91 2.42 \$2,074 36.1% 1.73 2.42 3.7% 4.0% 4.2% ESG Analysis of Suntec REIT 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, as well as 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 is made up of 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 its 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]] Upgraded the Building Management System for 55 Currie and Southgate Complex and conducted a cyclical replacement of Air Handling Units at Suntec Office Towers and One Raffles Quay. [[3]] Undertook a toy collection drive at Suntec City in support of Food from the Heart Toy Buffet Carnival, benefiting approximately 2,000 underprivileged children, and conducted 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 over this period. [[3]] Continued efforts in ESG could lead to improved operational efficiencies and financial performance. [[3]] Key Financial Charts and Ratios P/BV vs Asset Leverage: Displays the relationship between Suntec REIT’s rolling Price-to-Book Value ratio and its asset leverage. [[4]] Dividend Yield vs Net DPS: Illustrates the trend of dividend yield against net dividend per share. [[4]] Profit & Loss Statement (S\$m) (S\$m) Dec-23A Dec-24A Dec-25F Dec-26F Dec-27F Rental Revenues 462.7 463.6 466.6 477.7 492.0 Gross Property Revenue 462.7 463.6 466.6 477.7 492.0 Total Property Expenses (149.6) (152.8) (149.8) (154.5) (160.0) Net Property Income 313.2 310.8 316.8 323.2 332.0 Management Fees (61.4) (61.3) (61.3) (61.4) (61.5) Trustee’s Fees (9.3) (7.8) (7.8) (7.8) (7.8) EBITDA 242.5 241.6 247.7 254.0 262.7 Depreciation And Amortisation (1.6) 0.0 0.0 0.0 0.0 EBIT 240.8 241.6 247.7 254.0 262.7 Net Interest Income (151.9) (158.0) (156.3) (155.7) (155.0) Associates’ Profit 36.0 80.5 108.8 113.9 116.6 Other Income/(Expenses) 15.8 16.2 0.0 0.0 0.0 Exceptional Items 109.9 (30.0) 0.0 0.0 0.0 Pre-tax Profit 250.5 150.4 200.2 212.2 224.3 Taxation (8.0) (1.6) (11.2) (9.4) (9.5) Minority Interests (10.9) (9.4) (7.8) (8.2) (8.6) Net Profit 231.6 139.4 181.2 194.6 206.2 Distributable Profit 206.8 180.9 185.1 197.8 208.6 Cash Flow Statement (S\$m) (S\$m) Dec-23A Dec-24A Dec-25F Dec-26F Dec-27F Pre-tax Profit 250.5 150.4 200.2 212.2 224.3 Depreciation And Non-cash Adj. 107.8 62.5 47.5 41.8 38.4 Change In Working Capital (4.7) (4.8) (2.3) 2.9 3.7 Tax Paid (21.1) (12.7) (11.2) (9.4) (9.5) Others (80.8) 59.0 28.4 28.5 28.5 Cashflow From Operations 251.7 254.4 262.7 276.0 285.4 Capex (9.8) (11.2) 0.0 (10.0) (10.0) Net Investments And Sale Of FA 106.2 153.3 108.8 113.9 116.6 Other Investing Cashflow 580.7 13.4 7.0 7.0 7.0 Cash Flow From Investing 677.0 155.5 115.8 110.8 113.6 Debt Raised/(repaid) (603.8) (32.6) 0.0 10.0 10.0 Equity Raised/(Repaid) (16.0) (17.2) 0.0 0.0 0.0 Dividends Paid (209.9) (189.1) (185.1) (197.8) (208.6) Cash Interest And Others (150.1) (156.0) (156.3) (155.7) (155.0) Cash Flow From Financing (979.9) (394.9) (341.4) (343.4) (353.6) Total Cash Generated (51.1) 14.9 37.0 43.4 45.4 Free Cashflow To Firm 949.9 429.1 396.8 405.8 418.6 Free Cashflow To Equity 174.8 221.2 222.1 241.2 254.0 Balance Sheet (S\$m) (S\$m) Dec-23A Dec-24A Dec-25F Dec-26F Dec-27F Total Investments 10,794 9,017 9,017 9,027 9,037 Total Non-current Assets 10,820 9,023 9,023 9,033 9,043 Total Cash And Equivalents 218 99 136 180 225 Total Current Assets 309 137 174 217 263 Trade Creditors 120 123 121 124 128 Short-term Debt 400 300 300 300 300 Total Current Liabilities 552 444 442 444 448 Long-term Borrowings 3,933 2,831 2,831 2,841 2,851 Total Non-current Liabilities 3,993 2,880 2,880 2,890 2,900 Shareholders’ Equity 6,108 5,488 5,520 5,552 5,585 Total Equity 6,584 5,836 5,876 5,916 5,958 Key Ratios Dec-23A Dec-24A Dec-25F Dec-26F Dec-27F Gross Property Revenue Growth 8.30% 0.18% 0.65% 2.38% 3.00% NPI Growth (0.82%) (0.76%) 1.94% 2.03% 2.73% Net Property Income Margin 67.7% 67.0% 67.9% 67.7% 67.5% DPS Growth (19.7%) (13.2%) 1.2% 6.1% 4.8% Gross Interest Cover 1.39 1.36 1.42 1.45 1.50 Effective Tax Rate 3.18% 1.08% 5.59% 4.41% 4.26% Net Dividend Payout Ratio 89% 130% 102% 102% 101% Current Ratio 0.56 0.31 0.39 0.49 0.59 Quick Ratio 0.56 0.31 0.39 0.49 0.59 Cash Ratio 0.39 0.22 0.31 0.40 0.50 Return On Average Assets 2.03% 1.37% 1.97% 2.11% 2.22% Key Drivers Dec-23A Dec-24A Dec-25F Dec-26F Dec-27F Rental rate (S\$psf) 9.6 9.9 10.1 10.3 10.5 NLA (‘000sf) 3,337.3 3,296.1 3,296.1 3,296.1 3,296.1 Occupancy 1.0 1.0 0.9 0.9 0.9
