Suntec REIT DPU falls by 12.5% - Our Quick Take

Summary of Suntec REIT's 1H24 results

Suntec REIT reported its results and dividends for the first half of 2024 (1H24).

• Suntec REIT 1H24 DPU fell 12.5% year-on-year to 3.042 cents, of which 1.511 cents had been paid on 30 May 2024. This translates into an annualized distribution yield of 5.3%. 
• DPU was also lower than 2H23’s 3.659 cents. 
• The decline was mainly due to a capital distribution of S$11.5 million in the previous year. 

Revenue rose 1.1% while net property income fell 1.5%, held up by strong performance of the Singapore office and retail assets. 

1H24 rental reversions were +9.7% for the office, and +20.8% for the retail space, though the rate has moderated.

Australia portfolio was impacted by lower occupancy at 55 Currie Street, incentives at Southgate Complex, higher interest expense and weaker Australian dollar (A$). 

UK portfolio was affected by higher vacancy at The Minster Building, mitigated by recovery of doubtful debts and a stronger GBP.

Finance expense rose 4.1% to S$88 million, as interest cost rose to 4.02%, from 3.84% as at Dec-23. About 55% of debts are on fixed rates. 

Gearing is maintained at 42.3%, but average debt maturity has been extended to 3.32 years. 

Adjusted interest coverage ratio (ICR) was 1.9x, similar to the level at Mar-24. 

Suntec REIT divested 2 strata units at Suntec Office Towers for S$31.5 million, and at 27% above book value. The sale will be completed in 2H24. Its intention is to divest up to S$100 million worth of strata units to pare down debt. 

MAS’ proposal to fix a standard gearing cap at 50% and a minimum Interest Coverage Ratio (ICR) at 1.5x may help to alleviate the pressure to divest.

Beansprout's take on Suntec REIT's 1H24 results

The results are likely to be viewed as negative by investors due to the 12.5% decline in DPU. 

DPU for 2H24 is likely to be lower year-on-year with the absence of capital distribution and higher financing costs.

The immediate focus would be to improve occupancy at 55 Currie Street in Adelaide and Southgate Complex in Melbourne, which are 56.2% and 87.3%, respectively.  

In the UK, leasing downtime at the Minster Building might affect revenue in 2H24. It is now 91.3% occupied.

While leases expiring in 2024 is low at 8.3% of total lettable area, this will rise to 25.4% at Suntec City office and 26.9% for the Singapore retail portfolio. 

The REIT might prioritize occupancy to preserve revenue and cash flow, in our view, which could imply limited growth in distribution.

Dive deeper into the Suntec REIT with our checklist and find out if it may be worthwhile adding the REIT to your watchlist. 

To learn more about our outlook on Singapore REITs, read our detailed report on "Singapore REITs - Distributions may remain under pressure"

Is it time to buy Singapore REITs? Join our free webinar on at 7.30pm on 7 August (Wed) where we will share our thoughts on Singapore REITs.

Related links:

• Suntec REIT share price and share price target
• Suntec REIT dividend forecast and dividend history

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