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 [email protected] [[4]]
- LI Jialin
- T (65) 6210 8663
- E [email protected] [[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 |
