Suntec REIT announces SGD NC5 perpetual bonds at an IPG of 4.80%

Suntec Real Estate Investment Trust (“Suntec REIT”) plans to issue new subordinated NC5 perpetual bonds (non-call in the first 5 years) at an initial price guidance (“IPG”) of 4.80%. The new notes are expected to be issued on 17 June 2025. Both the issuer and the bonds are unrated. Suntec REIT indicated that the net proceeds will be used to refinance its existing borrowings, including the SGD 200M 3.8% perpetual bond (“perp”) callable in October 2025. This new issuance is made available only for accredited and institutional investors.

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 rose 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 which 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 due to fair value losses of -SGD 30.0M in investment properties (FY23: SGD  109.9M) despite divestment gains of SGD 15.0M.

The REIT released a business update in late April. As of 1Q25, the committed occupancy rate for SG office has dipped slightly but remains high at 98.7% in 1Q25 (1Q24: 99.4%) as compared to the core CBD office occupancy rate of 94.6% in the same period. Meanwhile, SG retail occupancy rate improved to 98.2% in 1Q25 (1Q24: 95.8%), higher than the Central Area (Outside Orchard) occupancy rate of 93.2%. However, rent reversion slipped for Suntec REIT’s with SG office portfolios falling to 8.0% in 1Q25 (1Q24: 11.4%) and Suntec City Mall falling to 10.4% in 1Q25 (1Q24: 21.7%).

Overall, Suntec REIT’s SG portfolio reported higher operating results YoY, and we expect it to remain stable, anchoring the REIT's total income. Amidst moderating economic momentum, SG office properties should remain more resilient, helped by healthy occupancies, while retail may face greater headwinds from more cautious consumer spending.

Suntec REIT reported a slight increase in total debt to SGD 4,361M as of 31 Mar ’25 (31 Dec ‘24: SGD 4,227M). As such, the reported aggregate leverage ratio rose to 43.4% (31 Dec ‘24: 42.4%), one of the higher ones across the Singapore REITs space. That said, the REIT does have some buffer to the MAS regulatory limit of 50%. 

In terms of its debt maturity profile, we think financing needs from FY25 – FY26 are manageable, but expect higher needs from FY27 onwards (Maturities FY27: SGD 900M, FY28: SGD 1,381M, FY29: SGD 1,150M) due to the larger value of sustainability-linked loans maturing. This is partly reflected by an increased weighted average debt maturity of 3.24 years as of 31 Mar ’25 (31 Dec ‘24: 2.83 years).

Suntec REIT also reported a ICR of 1.9x as of 31 Mar ’25 (31 Dec ‘24: 1.9x), above the regulatory minimum of 1.5x. While all-in financing cost has fallen to 3.96% p.a. (31 Dec ‘24: 4.06% p.a.), management expects it to remain elevated at approximately 4.0% if current rates remain unchanged – which is likely to keep ICR steady, barring any major decline in EBITDA. While there remains a slight buffer, Suntec REIT’s ICR is approaching the 1.8x threshold. If it falls below this level, MAS will require the REIT manager to disclose the steps and/or plans to improve the ratio.

Table 1: Comparing Suntec REIT’s new issue with SGD REIT perpetual peers

We believe Suntec REIT’s credit profile has moderated in FY24 and amongst SGD REITs, the REIT continues to hold a high leverage profile and poorer debt ratios. With a light near-term debt maturity profile, we see little financing risk over the next 1-2 years, especially with the REIT’s ability to tap the bond market. However, we expect greater financing pressure from 2027 onwards.

Suntec REIT’s new issue has a higher IPG against the yield to next call (“YTC”) of its peers with similar call dates (ARTSP 4.600% Perpetual Corp (SGD), AAREIT 4.700% Perpetual Corp (SGD)). We attribute this to its higher leverage profile and poorer credit profile. That said, we expect the final price guidance (“FPG”) to adjust downwards from the IPG and appear fairer as compared to its peers. The lower yield to next call from its peers also reflects their lower initial spread. 

Against a more leveraged peer like ESR-REIT, we think EREIT 6.000% Perpetual Corp (SGD) is a higher yielding option with a slightly better leverage profile and relatively stronger MAS regulatory ratios, albeit with larger upcoming maturities in 2026.

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Suntec REIT announces SGD 6-year senior unsecured bonds at an FPG of 3.40%

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.