Suntec Real Estate Investment Trust (“Suntec REIT”) plans to issue new senior unsecured bonds at a final price guidance (“FPG”) of 3.40%. The new notes are expected to be issued on 27 March 2025, with a maturity date on 27 March 2031. The REIT indicated that the net proceeds will be used to refinance its existing borrowings, finance acquisitions and/or investments, finance any asset enhancement works, and general corporate purposes.
Suntec REIT is a real estate investment trust which holds a mixed portfolio of properties primarily used for office, retail, and convention purposes, with the flagship property being Suntec City itself. As of 31 December 2024, the REIT has an asset under management of SGD$ 12.1B. The majority of its portfolio is located in Singapore (72%), with others situated in Australia (16%) and the UK (12%). In terms of sector, office (71%) makes up the majority of the REIT’s income, followed by retail (24%) and convention (5%).
For the full year of 2024 (“FY24”), gross revenue was relatively flat at SGD$ 463.6M (FY23: SGD$ 462.7M), as stronger operating performance from Suntec City Office and Suntec City Mall was offset by lower occupancy rates from some of the REIT’s Australia and London properties. Property expenses worsened by -2.1% YoY to SGD$ 152.8M (FY23: SGD$ 149.6M) resulting in a lower net property income (“NPI”) of SGD$ 310.8M, 0.8% lower than FY23 (FY23: SGD$ 313.2M). That said, joint venture income from properties that Suntec REIT has an interest (One Raffles Quay, MBFC Properties, Nova Properties (London)) collectively performed well, recording an income of SGD$ 80.5M, 123.3% higher than FY23 (FY23: SGD$ 36.0M).
Suntec REIT reported a 26.4% YoY rise in net income to SGD$ 165.4M (FY23: SGD$130.9M) in FY24. However, total return before tax fell to SGD$ 137.8M in FY24 (FY23: SGD$ 204.3M) largely to due to fair value losses of -SGD$ 30.0M in investment properties (FY23: fair value gains of SGD$ 109.9M) despite divestment gains of SGD$ 15.0M. Most of the fair value losses were seen particularly in its Australia segment.
As of FY24, occupancy in Suntec REIT’s office and retail portfolios remain relatively high at 95.4% (FY23: 94.9%) and 97.9% (FY23: 95.2%) respectively. In particular, the REIT’s Singapore portfolio – both property and retail - reported strong committed occupancy rate. The REIT’s office portfolio reported a committed occupancy rate of 98.7%, higher than the 94.7% for core CBD occupancy. Meanwhile, the REIT’s retail portfolio reported a committed occupancy rate of 98.3%, higher than the 91.8% for the central area outside Orchard.
Rent reversion slipped for Suntec REIT’s office portfolios to 10.6% (FY23: 13.2%) but retail saw an increase to 22.9% (FY23: 21.5%). Similarly, the Singapore portfolio continues to record decent rent reversion. Singapore office and retail (Suntec City Mall) properties reported rent reversions of 10.3% and 23.2% respectively.
Suntec REIT’s portfolio weighted average lease expiry (“WALE”) dropped to 3.8 years for the office portfolio (FY23: 4.2 years) and risen slightly to 2.3 years for the retail portfolio in FY24 ( FY 23: 2.1 years). A shorter WALE can allow the REIT negotiate better rents upon the lease renewal.
Suntec REIT reported a slight decline of total debt to SGD$ 4.23B in FY24 (FY23: SGD$ 4.28M). In terms of its debt maturity profile, we see greater financing needs from FY27 onwards as a larger value of sustainability-linked loans is expected to mature. The REIT’s reported aggregate leverage ratio stands at 42.4% as of 31 Dec’ 2024 (31 Dec 2023: 42.3%), one of the higher ones across the Singapore REITs space. The REIT now has a wider buffer against regulatory limits with MAS raising (the limit) to 50% instead of the prior 45%.
Suntec REIT also reported a slight drop in ICR of 1.9x in FY24 (FY23: 2.0x) but above the regulatory limit of 1.5x. This is in line with the higher all-in financing cost of 4.06% p.a. (FY23: 3.84%). If the ICR falls below 1.8 times, MAS will require the REIT manager to disclose information regarding the steps and/or plan to improve the ratio.
Table 1: Comparing Suntec REIT’s new issue with SGD REIT peers
|
Issuance |
Ask Price |
Years to Maturity |
Yield to Maturity |
|
SUNSP 3.400% 27Mar2031Corp (SGD)* |
100.00* |
6.00* |
3.40%* |
|
99.37 |
1.88 |
3.30% |
|
|
101.78 |
6.30 |
3.04% |
|
|
105.48 |
5.03 |
3.07% |
|
|
100.83 |
4.94 |
3.86% |
|
|
100.70 |
6.52 |
3.78% |
|
|
Sources: Bondsupermart, iFAST Compilations. *Yet to be issued. |
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Overall, we think Suntec REIT’s credit profile has moderated in FY24 and amongst SGD REITs, it continues to hold a higher leverage profile and poorer debt ratios. Despite this, Suntec REIT has demonstrated the ability to tap the bond market and other modes of financing (i.e. green loans) to refinance its loans. With a light near-term debt maturity profile, we think there should be little refinancing risks in the near-term but expect more uncertainties in the longer term. We continue to maintain cautious against the issuer Suntec REIT, as we have expressed previously.
Suntec REIT’s new issue is expected to trade at a final price guidance (“FPG”) of 3.4%. The FPG looks unattractive relative to SUNSP 2.950% 05Feb2027 Corp (SGD) which is offering around 3.3% for a shorter maturity. The FPG looks higher than yields of CAPITA 3.350% 07Jul2031 Corp (SGD) and MCTSP 4.250% 29Mar2030 Corp (SGD) - SGD REITS with a commercial and/or retail portfolio (with similar tenor). We attribute this to Suntec REIT’s poorer credit profile.
That said, there are higher yielding opportunities like OUECT 3.900% 26Sep2031 Corp (SGD) and the recently issued, EREIT 4.050% 27Feb2030 Corp (SGD), where we are more comfortable with their credit profile. In sum, we see better SGD bond opportunities and think Suntec REIT’s new issue is more suitable for investors with greater risk appetite.
