Should You Buy Suntec Real Estate Investment Trust Today?

Listed on 9 December 2004, Suntec Real Estate Investment Trust invests and derives income from a portfolio of office and retail properties located in Singapore and Australia. As I write, it has 7 assets valued at S$ 9.6 billion. In this article, I’ll cover 10 main things that you need to know about Suntec REIT before you invest.

#1: Stock Symbol

Ticker Symbol: SGX: T82U
Market Capitalization: S$ 4.50 billion (19 June 2018)

Share Price: S$ 1.69 (19 June 2018)

Industry: Reit

#2: The Portfolio

Presently, Suntec REIT is generating income from the following properties:

1. Suntec City
   It owns 100% of Suntec City Office, 100% of Suntec City Mall, and as well as 60.8% of Suntec Singapore, a world-class convention centre. It derived income from a total of 601 tenants and had occupancy rate of 99.3% in 2017. In that year, Suntec City had recorded S$ 209.1 million in net property income (NPI) and thus, is currently the main income contributor to Suntec REIT.

2. Marina Bay Financial Centre (MBFC) Properties
   It owns ⅓ interest in the iconic MBFC Properties, which consists of 2 Grade-A Office Towers and a subterranean mall in Singapore. MBFC Properties have enjoyed 99.8% in occupancy rate with 110 tenants. In 2017, these properties had contributed S$ 53.6 million in NPI and are the second largest income contributor to Suntec REIT.

3. 177 Pacific Highway
   It owns 100% of 177 Pacific Highway, a Grade-A Office Building that is situated in North Sydney, Australia. It is fully occupied with 10 key tenants such as CBRE, Cisco Systems and CIMIC Group Ltd. In year 2017, this property had contributed S$ 35.4 million in NPI, thus, it is the third largest income contributor to Suntec REIT.
   
   
4. One Raffles Quay
   It owns ⅓ interest in One Raffles City. It consists of 2 Grade-A Office Towers in Singapore. It is fully occupied with 56 tenants. In 2017, this property had recorded S$ 28.8 million in NPI.
   
   
5. Southgate Complex
   It owned 25% of Southgate Complex (Refer Point #5). This property  comprises of 2 Grade-A Office Towers and a 3-Storey Retail Podium located in Melbourne, Australia. It recorded a 90.8% occupancy rate with a pool of 88 tenants. In 2017, this property had contributed S$ 7.3 million in NPI to Suntec REIT.

#3: The Financials

Overall, Suntec REIT has increased in both gross revenues and distributable income over the last 5 years. Gross revenues grown from S$ 234.1 million in  2013 to S$ 354.2 million in 2017. This, in turn, had resulted in stable growth in distributable income from S$ 211.2 million in 2013 to S$ 263.0 million in 2017. Distribution per unit (DPU) increased from 9.33 cents in 2013 to 10.01 cents in 2017.

 

Source: Annual Reports of Suntec REIT

#4: Balance Sheet Strength

As at 31 March 2018, Suntec REIT reported to have total debt outstanding of S$ 3.27 billion. Its aggregate leverage ratio is 36.6%, which is within the limit of 45% set by the MAS. Its all-in financing costs was 2.73% a year.

#5: Lease Expiry

Office Segment

Suntec REIT’s office segment has a weighted average lease expiry (WALE) of 3.62 years. 75.0% of its leases would expire starting in year 2020 and beyond. The office segment is more significant as it had contributed S$ 143.9 million, or 58.9% of Suntec REIT’s total NPI in 2017.

Retail Segment (Inclusive of Convention Centre)

Suntec REIT’s retail segment has a WALE of 2.22 years. 50.2% of leases begin to expire in 2020 and beyond. Its retail segment contributed S$ 100.5 million, or 41.1% of Suntec REIT’s total NPI in 2017.

#6: Latest Acquisitions

In November 2016, Suntec REIT has completed its acquisition of a 25% stake in Southgate Complex for A$ 144.5 million. This acquisition is one which has an option that allows Suntec REIT to buy another 25% stake in this property. It had generated S$ 7.3 million in NPI in 2017 (Refer Point #2).

In February 2018, Suntec REIT has exercised the option and hence, acquired the other 25% stake in Southgate Complex for A$ 144.5 million. Suntec REIT increased its stake in this property to 50% as it announced the completion of this transaction on 31 May 2018.

#7: Development Properties

Suntec REIT has two investment properties under development. They are:

1. 9 Penang Road
   It owns 30% of 9 Penang Road. Formerly known as Park Mall, Suntec REIT is developing it into a new Grade-A commercial building. It is a joint venture project participated with Haiyi Holdings Pte Ltd (35%) and SingHaiyi Group Ltd (35%) and is expected to cost about S$ 800 million. This project is expected to be completed by 2019.
   
   
2. Olderfleet, 477 Collins Street
   In August 2017, Suntec REIT has acquired 50% interest of Olderfleet for A$ 414.7 million. It is located at Melbourne CBD, Australia and it is to be developed into a 40-storey state-of-the-art commercial office building. The construction of this building is scheduled to complete by 2020.

#8: Valuation

As I write, Suntec REIT is trading at S$ 1.69 a unit.

As at 31 March 2018, Suntec REIT has reported to have S$ 2.104 in net asset value a unit. Thus, its current P/NAV works out to be 0.80. It is presently on the lower end of its 5-year range of 0.720 – 1.015.

Suntec REIT adopts a distribution policy to declare and pay out at least 90% of its distributable income on a quarterly basis. It has declared and paid 10.01 cents in DPU for 2017. If Suntec REIT maintains its DPU at 10.01 cents, thus, its expected gross dividend yield is 5.92%, close to its higher end of its 5-year range of 4.66% – 6.45%.

Calculated based on Figures Presented in Annual Reports of Suntec REIT

#9: Investor Relations

For further enquiries or to request for additional investment information on Suntec REIT’s Investors Relation matters, you may contact:

Melissa Chow

Manager, Investor Relations

Email: melissachow@ara.com.hk

ARA Trust Management (Suntec) Ltd

Telephone: +65 6835 9232

#10: Major Shareholders

As at 26 February 2018, the main shareholders and their respective interest in Suntec REIT are as followed:

– Tang Gordon @ Tang Yigang: 9.62% (Direct)

– Celine Tang @ Chen Huaidan: 6.58% (Direct)

– Dr. Tan Kheng Lian: 10.51% (Direct (Negligible) + Indirect)

– Warburg Pincus & Co.: 6.16% (Indirect)

Note:

Tang Gordon and Celine Tang are husband and wife.

Conclusion:

Suntec REIT has delivered stable distributions to its unitholders over the last 5 years.

Suntec REIT is enjoying near full occupancy for its properties and expects to generate additional rental income from 9 Penang Road and Olderfleet in one or two years time as soon as they are completed. Thus, it has laid itself a firm foundation to sustain distribution growth in the future.

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