Not so fast: Twin headwinds threaten to pummel Suntec REIT

Its recent strong showing could prove ephemeral.

This season saw the property conglomerate bank on the robust performance of its recently completed Suntec City Mall redevelopment, but double headwinds could pull the rug from beneath Suntec REIT.

According to analysts from DBS, the retail sector proved to be a murky place for Suntec, as its mall’s rents underperformed the Manager’s initial target.

“Phase 3 of AEI works at Suntec City Mall was completed in Feb-15, bringing the Mall’s nearly three-year, S$410m redevelopment to completion,” DBS said.

“While the Manager has achieved healthy committed occupancy rates of 96.4%, we note that average rents of S$12.03 psf pm have fallen short of the Manager’s initial target of S$12.59 in light of a difficult leasing environment,” they added.

Meanwhile, Suntec REIT’s office assets add salt to its wound, as volatility in rents and occupancies are expected to be more aggressive hen new office supply enters the CBD starting 2016.

“Over the quarter, contribution from One Raffles Quay fell 21% yo-y due to higher leasing commissions attributable to a significant lease renewal. Marina Bay Financial Centre Tower 1 & 2 (MBFC’s) earnings also declined by 11% as occupancy fell 2.3ppts to 97.7%,” DBS said.