Suntec REIT was listed on the Singapore Exchange in 2004. It was priced at S$1.00 per unit, with a net asset value (NAV) of S$0.95. And a market cap of S$1.29 billion.
At the time, its assets included the iconic Suntec City Mall and Suntec City Office Towers in the Suntec City area. Both properties contributed roughly equally to Suntec REIT’s net property income.
Today, this retail and office landlord has evolved. Its portfolio now spans across three countries, though its core income still comes heavily from its office assets.
Currently, Suntec REIT trades at ~S$1.19 per unit – a steep 35% drop from pre-COVID levels – and a sharp discount to its S$2.05 NAV. That’s a 5.3% dividend yield.
Given Suntec REIT is trading at a ~0.58x P/B ratio, is this a buy? Let’s dive in.
Suntec REIT’s portfolio: offices still dominate
Suntec REIT’s properties are broken down into three assets in Singapore, five in Australia and two in the UK. Of which, ~4.3 million sqft of Suntec REIT’s properties are offices, ~0.9 million sqft are retail, and ~0.4 million sqft is one convention centre.
Suntec REIT’s net property income comes mainly from its Singapore properties and offices.
Financials held steady but no strong growth
When I compared its latest financial results against 1H2024, Suntec REIT saw:
- Gross revenues up 3.3% to ~S$234 million
- Net property income was up 5.6% to ~S$159 million
- Distribution income rose 4.6% to ~S$92 million
- DPU was up 3.7% to 3.155 cents per unit
Not too shabby.
What’s more, Suntec REIT’s rental reversions are still healthy. In fact, after the pandemic, all of Suntec REIT’s properties saw double-digit increases in rents – a positive sign.
Since operating costs of managing a property are fixed, higher rental adjustments mean even a small rent increase will flow straight to the bottomline.
Occupancy rates slipped – but still healthy
Suntec REIT’s financial results look solid. Occupancy rates may have slid:
- Singapore offices dropped by 0.3%
- Australia properties fell 0.5%
- UK properties down by 3.3%
But it still looks healthy…
What I’m concerned is – growing vacancies in Singapore premium offices
Now, one of my concerns is while occupancy rates may look steady, I felt there’s a structural sign to the working styles of big companies. I’ll explain.
As I’ve written in my previous article on NTT DC REIT, you’d know offices are among the worst performing real estate, and have been losing value due to work from home amongst companies. I’m cautious.
Category 1 (blue line): Premium office spaces
Category 2 (orange line): Rest of Singapore offices
While employers have been favouring “return to office”, I’m certain most companies are adopting hybrid models, which reduces demand for large office floors.
Suntec REIT’s high debt profile, but manageable – for now
Suntec REIT has a high debt profile, with a 42% leverage ratio. It has ~S$4 billion of debt to be refinanced, with an average ~2.8 years maturity profile. If interest rates bounces up and down, it affects the interest costs it pays on its debt.
Furthermore, it has an interest coverage ratio of ~1.9x. So far, Suntec REIT has a high cost of debt of ~4.1%. This is projected to fall as long as Singapore cuts interest rates.
~58% of Suntec’s borrowing is fixed, therefore a pretty significant chunk of debt is looking to benefit from lower rates.
In case you missed my recent posts: |
The good news is looking at Suntec’s debt schedule, it won’t need to refinance for the rest of 2025 – not much for 2026 as well. However, what I worry about is its debt maturity between 2027 and 2029.
Because that’s where most of Suntec’s debt is concentrated at the moment.
Why Suntec REIT’s dividend yield isn’t telling the full story
At first glance, Suntec REIT’s distribution yield doesn’t look bad. When looking at current distribution it seems like a steady 5-6% yield. Here’s the problem.
Suntec REIT’s yield has held steady only because over the last five years, shares have fallen. In reality, its distributions have been dropping year after year.
This means: yield = DPU/Share Price
If the yield is flat, but the price falls… DPU must be falling too.
A failed privatization attempt at S$1.19
Here’s something interesting. In late 2024, Gordon and Celine Tang – both owners of 31% of Suntec REIT stake – wanted to take Suntec REIT private at S$1.19 per unit.
Recently, there was some activity ongoing with Suntec. Suntec REIT was trading at half of its NAV, which was attractive for both Goron and Celine.
Yet the offer was rejected by investors. Investors clearly felt the offer price was too low and weren’t willing to sell, which was a massive 40% discount to Suntec REIT’s book value.
Why is this important? The Tang family obviously saw value at S$1.19. But I believe more importantly, the message from markets signal potential undervaluedness.
Is Suntec REIT a good buy? My final thoughts
Since its IPO in 2004, Suntec REIT’s NAV has doubled from S$1.00 to ~S$2.00. Yet shares of this Singapore landlord have only risen less than 20%.
At 5%+ dividend yield, Suntec REIT’s DPU is backed by Singapore iconic Suntec assets. Though occupancy rates are still high, I’m not a fan of offices because of companies adopting a hybrid working model.
What’s more, 73% of Suntec REIT’s income is derived from its offices.
The Tang family still has skin in the game, owning a majority stake in Suntec REIT. Another potential bid could happen in the future.
The more I look at this, I’ve realized Suntec REIT is seeing falling distributions, which also leads to shares decline.
