Suntec REIT unlikely to post strong growth near-term: Analyst

Suntec City mall in SingaporeSuntec City mall in Singapore; photo taken pre-Covid

Despite a headline jump in Suntec REIT’s earnings, that may be a one-off with strong growth ahead unlikely, said analyst/Insight provider Clarence Chu of Aequitas Research who publishes on Smartkarma in a note published Friday.

“While there is nothing outwardly wrong with the REIT, we don’t expect it to report strong organic growth in the near term. This comes in view of the current market uncertainty, stripping away one-offs and factoring in Minster Building’s full contribution in 4Q21,” Chu said in the note.

Chu noted the two month’s contribution from The Minster Building only made up around 4.9 percent of gross revenue.

“We think [that] wouldn’t move the needle much for the REIT,” he said in the note published to Smartkarma.

Suntec REIT announced it would acquire The Minster Building at end-June, with deal completion in late July; on Friday, the REIT said the property had S$4.5 million in gross revenue in the third quarter.

Chu added: “While the recent Minster Building will add a small boost in recurring income, the headline year-on-year growth had been due to the new Minster Building’s contribution and nonrecurring items like the surrender fee in 177 Pacific Highway.”

Chu estimated that stripping away The Minster Building, adjusting 477 Collins Street for a full-period contribution and removing a surrender fee at the 177 Pacific Highway property by assuming no organic growth for the asset would result in only around 5 percent top-line growth.

The REIT reported Friday its third quarter net property income climbed 45.5 percent on-year to S$68.8 million on two newly acquired assets in London and the completed development at 477 Collins Street in Melbourne, Australia.

In addition, the REIT noted it received a one-off surrender fee at the 177 Pacific Highway property without disclosing the amount. Gross revenue from the asset in the third quarter was S$12.7 million, up from S$10.1 million in the year-earlier period, the REIT said.

Gross revenue for the July-to-September quarter increased 16.5 percent on-year to S$92.7 million while joint venture income rose 21.7 percent on-year to S$30.3 million, Suntec REIT said in a filing to SGX.

On the outlook, Chu noted Singapore faces continued uncertainty as the government announced a fresh stabilization phase until late in the fourth quarter. But he added, the REIT doesn’t have many lease expiries in the fourth quarter, and on the retail end, footfall impact appears minimal despite the tightening measures.

The outlook in Australia is bleak, he said, as while lockdown is nearing an end, Covid-19 cases are rising. However, both Australia and the U.K. have minimal lease expiries in the fourth quarter and in 2022, he noted.

Suntec REIT’s portfolio consists of:

  • Properties in Singapore’s largest integrated commercial development, Suntec City, in Singapore
  • A 66.3 percent interest in Suntec Singapore Convention & Exhibition Centre in Singapore
  • A one-third interest in One Raffles Quay in Singapore
  • A one-third interest in Marina Bay Financial Centre Towers 1 and 2 and the Marina Bay Link Mall in Singapore
  • A 100 percent interest in a commercial building located at 177 Pacific Highway, Sydney in Australia
  • A 100 percent interest in a commercial building located at 21 Harris Street, Pyrmont, Sydney in Australia
  • A 50.0 percent interest in Southgate Complex, Melbourne in Australia
  • A 50.0 percent interest in a commercial building located at Olderfleet 477 Collins Street, Melbourne in Australia
  • A 100 percent interest in a commercial building located at 55 Currie Street, Adelaide, Australia
  • A 50.0 percent interest in Nova Properties in London, United Kingdom
  • A 100 percent interest in The Minster Building located in London, United Kingdom