Suntec REIT expects better performance in H2

Its Singapore office portfolio remains resilient with diverse tenant bases.

Suntec REIT’s manager ARA Trust Management (Suntec) Limited expects the performance in H2 to improve, according to its annual general meeting. This comes as the economy reopens and additional contributions were received from completed developments.

Its Singapore office portfolio also remained resilient, underpinned by the properties’ diverse tenant bases. ARA Trust Management retained 10% of the distributable income from operations and held back its capital distribution in Q1 which is said to be necessary to provide a reasonable return to unitholders, build cash reserves, as well as assist tenants during the pandemic.

Further, rental revenue is expected to remain robust attributable to the completion of 52% of FY 2020 renewals for the Singapore office portfolio and strong rent reversions achieved from previous quarters. Rent reversions are expected to remain strong for the financial year, underpinned by limited office supply whilst portfolio occupancy is expected to remain healthy, within the market range of 95%.

Suntec REIT’s projects under development at 9 Penang Road and 477 Collins Street have also been completed on schedule.

However, the management warns that office demand will be impacted due to deferment of relocation and expansion plans by corporates. Some companies may also continue to adopt split-team operations, whilst shifts in occupier demand towards remote working and space utilisation are anticipated.

Suntec City Mall is expected to face strong headwinds for the rest of the year with shopper traffic dropping significantly and only expecting a gradual recovery from Q3. However, Suntec City Mall is partially shielded by its primary catchment comprising predominantly office workers and local residents. It will also be engaging customers digitally through Suntec+ Eats, which enables customers to receive free delivery within Suntec City.

Further, Suntec Convention is closed till 2 August to reduce operating costs. The temporary closure may be extended if mandated measures are prolonged.

On the other hand, Suntec REIT issued $200m 7-year medium term notes and secured $434.66m (A$450m) green loan facilities in Q1. The proceeds were mainly used for acquisition and refinancing purposes.

Based on the MAS ALR limit of 50%, Suntec REIT has an adequate debt headroom of approximately $2b. The REIT is said to have access to diversified sources of funding, such as bank borrowings and debt capital market, and the company noted that there are sufficient resources to cater to its business needs.

The management assured that it is committed to delivering value to the stakeholders of Suntec REIT and maintaining the long-term interests of all unitholders. The management fees comprise a base fee of 0.3% per annum of the value of the properties of Suntec REIT, which commensurate with the complexity and efforts required of the manager in managing Suntec REIT.

In addition, there is also a performance fee equal to 4.5% per annum of the net property income (NPI) of Suntec REIT, reflective of the alignment of interests to drive higher income yields for Suntec REIT. ARA Trust Management has continued to elect to receive 80% of the management fees in units, whilst the remaining 20% are in cash for working capital requirements.

In the meantime, the sales team continues to secure business opportunities for 2021 with all staff required to undergo online training. The management notes that the current situation has presented opportunities for them to review existing products and develop new online services.