Listed on Dec 2004 on SGX-ST, Suntec Real Estate Investment Trust (T82U.SI) is the first composite REIT in Singapore, owning income-producing real estate that is used for retail and/or office purposes. As at Jun 2015, the REIT has grew to a total asset size of S$8.7 billion.
TICKER SYMBOL: T82U.SI
MARKET CAP: S$4.1 Billion (12th Aug 2015)
MARKET PRICE/SHARE: S$1.65 (12th Aug 2015)
Suntec REIT owns a series of office and retail properties strategically located in the central of Singapore. It has also acquired a commercial tower in North Sydney, Australia, the Group’s first foray into foreign property investments. Currently, Suntec REIT manages:
- Suntec City Mall
- Park Mall
- One Raffles Quay (one-third interest)
- Marina Bay Financial Centre Towers 1 and 2 (one-third interest)
- Marina Bay Link Mall
- 177 Pacific Highway, North Sydney Australia (to be ready in 2016)
The Group’s properties are strategically located in premium sites central of Singapore, including Marina Bay and the Central Business District (CBD). The properties’ occupancy rate has remained largely stable except for Suntec City Mall which has recently completed its asset enhancement initiative (AEI). Overall committed occupancy for its office and retail are 99% and 95.1% respectively as at 30 Jun 2015. During the first half of 2015, Snntec REIT’s net property income (NPI) grew 20.5% to S$108 million with distributable amount to its unitholders at S$119 million, up from S$107 million over a year earlier.
The impact of the global financial crisis has seen foreign financial institutions withdraw some of their business operations from Singapore, relocating either offshore where cheaper labour could be found. As such, tenancy profile has shift toward the Technology, Media & Telecommunication sector relocating to prime office spaces.
1) Overseas Investment Property
With difficulty in finding property acquisitions at reasonable valuations in Singapore, the Group has ventured overseas to diversify their investment portfolio. The 177 Pacific Highway in North Sydney, Australia will be Suntec REIT’s first move into overseas expansion. The 31-storey A-grade commercial building is expected to be completed in early 2016 purchased at A$413 million. As at Feb 2015, the building is already 26% completed. The property is currently 100% pre-committed. The property’s prime location allows tenants to enjoy direct access to surrounding roadway and is well served by public transport. The property is a 5 minute walk from North Sydney Station.
2) Redevelopment of Park Mall
Suntec REIT has announced the divestment of Park Mall in order to realize the property’s market value and to redevelop the commercial complex. The Group has divested the property to Park Mall Pte Ltd with a joint venture formed together with SingHaiyi Group (35% stake) and Haiyi Holdings (35% stake). Suntec REIT will own 30% of the joint venture. The net proceeds of S$408 million through the sale will be used to fund Suntec REIT proportionate share in the JV with the remaining to be redeployed into investments, including repayment of borrowings. The redevelopment will allow enhancement of the property’s GFA, taking advantage of the two strips land acquired and the bonus plot ratio for sites near to the MRT station. The joint venture will seek to renew the land tenure for another 99 years, up from the remaining 53. In addition, the 30% interest in the JV will also enable Suntec REIT to acquire an office block after the property gets redeveloped.
1. Short-term Refinancing Risk
Although majority of the REIT’s borrowings are due in 2018 and 2019 (i.e. S$2,080 billion), Suntec REIT has roughly S$370 million due in 2016. The Group might face interest rate risk as it seeks to refinance in the period where US interest rates is expected to increase.
2. Committed Occupancy Rate in Suntec City Mall Remains Low
The recently revamped Suntec City Mall Phase 3 has faced difficulties in increasing its committed occupancy rate despite AEI. As at 2014, committed occupancy stood at 70%. Including Phase 1 and 2, Suntec City Mall’s overall retail occupancy increased from 92.5% in 1Q2015 to 94.7% in 1H2015. Given the retail sector is currently facing headwinds, Suntec City Mall might see its rental prices drop for the remaining prime space of Phase 3 which could put a drag on net property income.
KEY FIGURES (FY2015)
1. Underlying Business: Office/retail
2. Annualised Distribution Yield: 6.08%
3. Portfolio Occupancy Rate: Office:99%/ Retail: 95.1%
4. Leverage (Debt to Asset): 35.3%
5. Average Term to Maturity: 3.08 years
6. Average Cost of Debt: 2.7%
TOP SHAREHOLDERS (Aug 2015)
1. Raffles Investments Ltd: 9.06%
2. Black Rock: 5.95%
3. Vanguard Group Inc: 2.02%
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All views and opinions articulated in the article were expressed in Willie’s personal capacity and do not in any way represent those of his employer and other related entities. Willie does not own any shares in the companies mentioned above.