3 Surprising Facts About Suntec REIT

Suntec REIT is the first composite REIT in Singapore, owning income-generating properties that are primarily used for office or retail purposes. It is one of Singapore's most popular non-blue-chip REIT among dividend investors. Suntec REIT is a commercial REIT with a market capitalization of $4 billion and has a portfolio value of $10.5 billion as of 30 June 2020. Its property portfolio consists of prime commercial properties in Suntec City and also numerous commercial properties in Australia. Despite its smaller market capitalization and property portfolio, Suntec REIT's performance is comparable to some blue-chip REITs and certainly has its own perks. Here are 3 surprising facts about Suntec REIT.

1. Long Dividend History and High Dividend Yield

Suntec REIT has an impressive 16-year dividend history which is comparable to most blue-chip REITs (>10-years). This means that they have been paying out consistent dividends to shareholders without fail for 16 consecutive years. This shows the management's capability to payout sustainable dividends to investors. The last thing you would want as a dividend investor is to for the company/REIT to stop paying out their dividends as it signals that there is something fundamentally wrong with the company and you would stop receiving your passive income. Moreover, Suntec REIT has a pretty high 5-year average of dividend yield 6.8% which is much higher than the average blue-chip REIT (4-5%). Due to the COVID-19 pandemic, their dividends per unit decreased by 31.3% from 4.795 cents in 1H 19 to 3.293 cents in 1H 20 and their distributable income to unitholders also decreased by 12.2%. These reductions in dividends are mainly due to Suntec REIT giving out rental assistance to tenants during this COVID-19 pandemic. Suntec REIT is definitely able to resume their normal high dividend yield once the COVID-19 pandemic tides over. Their long consistent dividend history and high dividend yield are some of the reasons it is a very attractive non-blue-chip REIT in Singapore. 

2. Diversified Tenant Portfolio and High Tenant Occupancy Rate

Suntec REIT's portfolio consists of 4 properties in Singapore, 2 in Sydney, 2 in Melbourne, and 1 in Adelaide with a total worth of $10.5 billion as of 30 June 2020. They have a well-diversified tenant portfolio which helps to protect the REIT during tough financial times such as the current COVID-19 pandemic. This would mean that their income received is diversified and not heavily dependent on only a few tenants. Their Singapore's portfolio contributed 77% of the income in 1H 20 while their Australia's portfolio contributed 23%. Furthermore, their property portfolio has a high tenant occupancy for both Australia and Singapore's properties. The tenant occupancy rate for their Singapore's office properties is very high at 98.6% while the tenant occupancy rate for their Singapore's retail properties is also high at 96.4%. The tenant occupancy rate for their Australian properties is slightly lower at 93.1%. All sectors of their property portfolio have a high tenant occupancy rate (>90%). This shows that they are maximizing all of their properties to generate maximal income. This would increase the distributable income available to shareholders in the form of dividends. Therefore, Suntec REIT has a strong diversified portfolio and a high tenant occupancy rate that can sustain its attractive dividend yield. 

3. Relatively High Debt Gearing Ratio

One of the downsides of Suntec REIT is its relatively high debt gearing ratio of 41.3% as of 30 June 2020. This is higher than the appropriate debt gearing ratio of 40% that I would recommend. REITs often use debt as leverage to finance new acquisitions or properties to expand their portfolio at a faster rate. However, a high debt gearing ratio increases the risks associated with the REIT as the REIT might be unable to pay off its debt and run into financial trouble. This would mean that they might have to cut dividends drastically or stop paying out dividends entirely. However, Suntec REIT has managed to use proactive capital management to structure its debt payments such that no large amount of debt is due in any one year. For example, they have no debt to pay for in FY20 and their next debt payment is only in FY21. Their debt gearing ratio of 41.3% is still well within the Sinagpore's cutoff of 45% (Singapore recently increased the allowed debt gearing ratio for REITs to 50% due to the COVID-19 pandemic). Moreover, Suntec REIT has a strong balance sheet with total assets worth $10.5 billion and total liabilities at $4.5 billion. I am certain Suntec REIT can overcome this tough period and not run into financial hardship. Their management has shown capable capital management skills through the structuring of its debt payments. 

Verdict

In my opinion, Suntec REIT is definitely one of the more attractive and proven small REITs in Singapore given its long track record and sustainable dividends. It is currently trading at $1.41 per share and a price to book value of 0.67 (undervalued). Its dividends for 2020 will certainly not be impressive due to the COVID-19 pandemic but I am confident it will bounce back quickly after the COVID-19 pandemic tides over. You can consider adding this REIT to your portfolio for the long run given how it is definitely trading at a discounted price now. 

Source: Suntec REIT's 1H FY20 Results