Is Suntec REIT A Good Buy In 2025? [Fundamental Analysis]

In this article, we'll conduct a fundamental analysis and review of Suntec REIT and its suitability to achieve the following investment objective: To deliver a stable dividend yield of 5% to 6% per year while having high capital preservation ability.

Business Description

Suntec REIT is an office & commercial REIT that was listed in 2004 and owns properties across Singapore, Australia and the United Kingdom.

What I Like About Suntec REIT:

• Flagship properties such as Suntec City, One Raffles Quay and MBFC properties are prime-grade properties that provide high levels of rental income stability (Figure 1)

  
  

• Overall portfolio occupancy across retail and offices has been very stable across the years. (Figure 11)

What I Do Not Like About Suntec REIT:

• I disagree with the management’s decision to expand offshore which has resulted in the ongoing performance drag and the phenomenon of having to divest several strata units of Suntec City Office Tower to pare down their debt level which could have been avoided.

Updates From Recent Performance (FY2024)

General Comments:

• Top-line performances in FY2024 are rather stable with the improvements (rent reversion – Offices: 10.3% & Retail: 23.2%) in the Singapore property being offset by the underperformances in their offshore properties.

  
  

• The same phenomenon is observed in the portfolio valuation (-0.8%) with the uplift in local property valuations being offset by the decrease in their offshore properties.

  
  

• DPU from operations grew by 0.5% but Reported DPU decreased by 13% due to the absence of distribution from divestment gains.  

  
  

• The gearing ratio was stable but the weighted average cost of debt increased by 0.22% to 4.06%.

Positive Headwinds:

• -

Negative Headwinds:

• The management has expressed that Suntec REITs all-in financing cost is expected to increase by 0.1-0.2% as interest rate hedges that are expiring in the year were secured at significantly lower rates.

  
  

• The ongoing global trade war and rising economic uncertainty might result in additional headwinds for their offshore properties and the Suntec’s convention and Exhibition as businesses tighten their budget and reduce the number of potential MICE events in FY2025.

  
  

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Disclaimer:

This article is meant to be the opinion of the author

This article is for information purposes only

This article should not be seen as financial advice

This advertisement has not been reviewed by the Monetary Authority of Singapore