EUR 850.00 For Business Accounts Only

Morningstar | Standard Stewardship Rating of Suntec REIT Remains Intact Despite Change in CEO; FVE Unchanged

Suntec Real Estate Investment Trust is a commercial REIT that focuses on offices and, to a lesser extent, retail properties. The trust’s flagship asset, Suntec City, which constitutes more than half of its total property portfolio, consists of five office towers, one of Singapore’s largest shopping malls, and a convention and exhibition centre. Despite its location in the Central Area of Singapore with two subway stations connecting to the property, rental rates have been below the market average. This is due to Suntec City being located north of the Singapore River, while the core central business district, or CBD, is concentrated on the south, resulting in below-average grade A office market rental for its offices. As for the retail mall, the lower rental rates are mainly attributed to competition from malls nearby; its location, as it is not surrounded by residential areas and is far away from the main shopping district; and its odd shape, resulting in difficulty in navigating around the mall. In order to improve on rental income and valuation for Suntec City, Suntec REIT has rolled out several initiatives. Starting in 2018, the trust plans to spend around SGD 48 million over three years on an asset-enhancement initiative at its office towers. As for its retail mall, the trust is actively managing its floor space, improving tenant and trade mix, increasing marketing efforts, and organizing events to drive footfall to the mall. We view these initiatives positively and expect that they will increase the competitiveness and attractiveness of its property portfolio in the long term, resulting in higher rental rates and returns. The trust also owns a 33.3% stake in both One Raffles Quay and MBFC Properties, which are located in the CBD of Singapore. Owing to their prime location and high asset quality, both properties yield high occupancy rates and premium rental income. In order to diversify its portfolio, the trust acquired stakes in several properties in Sydney and Melbourne in Australia in the past few years. These mainly comprise offices with some retail units. We expect future growth for the trust to come from the development of 9 Penang Road and Olderfleet.