Suntec REIT(T82U.SGX) is an integrated commercial trust listed on the Singapore stock exchange since 2004. It comprises commercial, retail properties, and convention & meetings businesses. ARA Trust Management(Suntec) Limited manages Suntec’s properties in Singapore and abroad. Read also Best Singapore Dividend Stocks in Singapore.
You can’t deny Suntec is a locally registered conglomerate of real estate trust. It has a total capitalization of S$4.1 billion and assets of S$11.50 billion under management.
Suntec adopts a proactive management approach in running the business. The management seeks to increase profits by optimizing rental income, occupancy rates and enhancing property assets to increase yields.
Besides, Suntec uses a pro-growth strategy by actively acquiring high-yield properties locally and abroad at competitive prices. Suntec maximizes its edges in the capital market to increase corporate efficiency. The management actively hedges currency and interest rate contracts to protect profit from the downside and increase profits.
Suntec boasts a diversified portfolio of assets in various geographical locations. Actively listed as of June 30, 2021, all property valuations are as of December 31, 2020.
Suntec is running three integrated commercial properties in downtown Singapore. The total value is S$8.4 billion. Of the net lettable area of 3.5 million square feet, the office occupies 65.71% of the total area, while retail and convention take 25.71% and 8.57% separately. Suntec has a high occupancy rate in the rental market. The office occupancy ratio is 95%, while the retail sector ratio is 93.80%.
1. Suntec City
The property has a market value of S$5.5 billion. Suntec has 59.0% of Suntec City Office Towers, 100.0% of Suntec City Mall, and 66.3%3 in Suntec Singapore Convention and Exhibition Centre. Of the net lettable area of 2.5 million square feet, the office has 1.3 million, retail 0.9 million, and convention 0.3 million.
The occupancy rates for office and retail are 93.4% and 93.90%. The net property income for the property is S$74 million.
The property has a 99-year lease till 2088. The purchase price is S$2.5 billion.
2. One Raffles Quay
The property has a market value of S$1.3 billion. Suntec has 33.3% of the ownership of the property, and the net lettable area is 0.4 million square feet.
The occupancy rate is 96.70%, and the net property income is S$13.60 million. The 99-year land lease ends in 2100, and the purchase price is S$941.5 million.
3. MBFC Properties
The trust owns 33.30% of the properties, including the Marina Bay Link Mall, worth S$1.7 billion in total. The MBFC properties are also part of Marina Bay Financial Centre, with 0.3 million square feet.
The properties have an occupancy rate of 97.50% for offices and 91% for retail space. MBFC has a leasehold to 2104. The purchase price is S$1.5 billion.
Suntec’s other focus is Australia. The company has five assets in total. The combined market value of the local portfolio is S$2 billion with a net lettable area of 1.7 million square feet. Of these, 1.6 million is office area while the remaining 0.1 million is in retail.
The occupancy rates stand at 93.90% and 88% for offices and retail. The net property income for wholly-owned and its interest in joint ventures is S$49.40 million.
1. 21 Harris Street
It is a freehold and wholly-owned property at Pymont, NSW. The market value is S$305 million, and the purchase price is S$338.10 million. The property has 0.2 million square feet with 72% occupancy. The net property income is S$338.1million.
2. 177 Pacific Highways
Situated in North Sydney, it has a market value of S$655.7 million. Suntec wholly owns the freehold property. It has 0.4 square feet with 100% occupancy. Suntec bought the property at S$457.5 million with a net property income of S$17.30 million.
3. Olderfleet, 477 Collins Street, Melbourne
A freehold property, Suntec owns 50% of it for S$430.9 million. It is worth S$452.40 million. The net lettable area of 0.3 million square feet has a net property income of S$9.6 million with 96.6% occupancy.
4. Southgate Complex, Melbourne
The integrated freehold property with 50% ownership has a market value of S$391.90 million. It has a net lettable area of 0.4 million square feet with 95% and 88% occupancy rates for offices and retail. It has a net property income of S$10.9 million with a purchase price of S$299.8 million.
5. 55 Currie Street, Melbourne
The freehold property has a net lettable area of 0.3 million square feet with 95.20% occupancy. The Melbourne property has a market value of S$152.5 million with a net property income of S$5.8 million. The purchase price is S$138.9 million.
The U.K. is another market Suntec has pivoted. Two properties are now in the company’s portfolio.
1. Nova Properties, London
Leasehold property with the expiry of 3062, Nova, has a net lettable area of 0.3 million square feet. It is worth S$786.4 million with a 100% occupancy of a two-year guaranteed income.
Suntec owns 50% of the property with a split income of S$11.5 million. The purchase price is S$772.6 million.
2. The Minster Building, London
The wholly-owned property has a leasehold till 2989. It has a market value of S$699.3 million. It is an office building with a net lettable area of 0.3 million square feet. The occupancy rate is 96.70%, and the purchase price is S$667.2 million.
Like other industries hit by the pandemic over the past and a half years, commercial REITs suffer from the loss of rental income.
The 2020 revenue lost 14% to S$315.40 million from S$366.7 million of 2019. The distributable income lost 20% to S$209.2 million from S$262.7 million.
The distribution per unit(DPU) was reduced by 14%, from 9.457 cents per unit to 7.402 cents per unit. Vacancies and concessions to tenants are the reasons for the loss. Besides, the convention and meetings business also suffered a loss. In the first half of 2021, Suntec has recovered some lost ground. The revenue increased by 11.6%, from S$149.4 million to 166.8 million in 2020. The distributable income increased by 26.55% from S$136.7 million to S$173 million in 2020.
The distribution per unit(DPU) increased by 26.10%, from S$3.293 per unit to S$4.254 per unit in 2020.
The increases are due to the recovery of revenue, one-off compensation, and the divestment of the 9 Penang Road property. The contributions from the Australian assets and upside currency effect help return the profits in the first half of 2021.
We are optimistic about Suntec for the following factors:
- Border reopening: The Government is opening the border gradually, and business activities are beginning to gain ground.
- Divestments: Except for the sale of 9 Penang Road, another Suntec City Office Strata Units sale will bring another cash injection to the portfolio in the second half of this year.
- The acquisition of the Minster Building, London: The new project will soon bring the trust a more stable income.
- High occupancy rates: Suntec has had an average occupancy rate of more than 93% since 2019. It is higher than the industry rate.
- High gross rent per square foot: Suntec has a higher range of S$8.53 to S$9.09 per square foot than the industry average of S$7.75 per square foot.
- A high proportion of renewal leases: Suntec’s 60% business has come from renewal leases since the beginning of this year. It means the costs of finding new tenants are lower, and the income from renewal is sustainable. Besides, more than 60% of tenants come from technology, finance, and manufacturing, all high value-chain industrial sectors.
- Sustainable income: Despite the deterioration of retail and convention businesses, Suntec has a growing office leasing business. It makes up more than 80% of the total portfolio.
- The management uses pro-growth strategies to manage the leasing business, and actively seek new markets to expand income streams and portfolio value.
Moreover, the strong performance of the Australian assets brings more cash flows to the group. As the pandemic is fading in the second half of 2021, we expect Suntec to benefit from the growing business activities worldwide.
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