Hey fellow REIT investors! Today, we’re diving back into one of the most debated REITs in ‘The Dividend Uncle’ channel—Suntec REIT. This REIT has its loyal long-term supporters who believe in its high-quality assets, selling at considerable discounts to Net Asset Value or NAV, and then there are others who won’t go near it!
Now, if you watched my previous videos on Suntec REIT, you’ll know which camp I was in. Let’s just say… I wasn’t shy about calling out its riskier balance sheet and capital management. The high gearing ratio coupled with weak interest coverage ratio, and confusing decisions around asset divestments made it, in my view, one of the riskier big-name REITs. And of course, when I posted such views, many loyal supporters of Suntec REIT protested!
But time has passed, and recently, Suntec REIT released its full-year results for 2024. So the big question is: have things improved… or gotten worse? Are we still looking at a ticking time bomb, or is there now some light at the end of the tunnel?
But before we dive in, let me remind you that this post is for informational purposes only and not financial advice. Always do your own research and consult a licensed financial adviser before making any investment decisions. I own some of the REITs discussed, but what works for me might not work for you.
Alright, let’s get started!
Suntec REIT – An Iconic, Diversified Portfolio
If you’re new to REIT investing or just want a refresher on what Suntec REIT is all about, let me first give you a quick overview. If you’re an “old bird” at investing, feel free to jump ahead to the next section.
Suntec REIT is a Singapore-listed real estate investment trust that was established in 2004 and is managed by ESR Asset Management or previously A.R.A. Trust Management. It owns a mix of office, retail, and convention properties, with a strong foothold in Singapore’s Marina Bay area. Its flagship asset is Suntec City, which includes five office towers, a large retail mall, and the well-known Suntec Convention Centre.
But Suntec REIT isn’t just about Singapore. It has expanded regionally and now holds stakes in Grade A office properties in Sydney, Melbourne, and Adelaide in Australia, as well as prime assets in London, such as The Minster Building and Nova Properties.
While Suntec REIT is still relatively Singapore focused, with the Singapore assets accounting for 78% of total portfolio valuation, its exposure to Australia, at about 12%, and the United Kingdom, at about 10% of the portfolio, provided some geographical diversification.
One commonly held misconception is that Suntec REIT is retail focused, because of how prominent Suntec City Mall is. But actually it is an office-focused REIT, accounting for 77% of its total portfolio valuation. Retail and convention centres are 21% and 2% respectively.
As of 31 December 2024, Suntec REIT has a committed occupancy rate of 95.4% for its office portfolio and 97.9% for its retail portfolio—pretty strong numbers.
The REIT has historically offered investors exposure to quality commercial properties in prime locations, with a decent yield. But here’s the catch—it has also been trading at a persistent discount to its NAV for many years. If you look at the 5-year price-to-NAV chart, it’s clear that Suntec REIT has rarely traded near or above its book value. Some investors see this as a buying opportunity—an undervalued REIT with solid assets. But others caution that this may be a value trap: the discount has stayed wide for a long time due to ongoing concerns over its high gearing, and overseas asset risks.
Source: www.reit-tirement.com
So, while the REIT might look cheap on paper, the market is clearly pricing in risks. That’s why Suntec REIT continues to divide opinions—is it a bargain or a bet too risky? And do the latest FY2024 results change the picture for better or worse? Let’s explore Suntec REIT’s performance in three key areas.
1. Gearing and Valuation Pressures – Still a Concern (But Showing Some Stability)
Let’s start with one of the biggest elephants in the room—Suntec REIT’s high gearing.
As of the end of 2024, gearing stands at 42.4%, slightly up from 42.3% in the previous year. Now, you may recall that Suntec REIT’s gearing went up to close to 44% with the impact of COVID-19, which was dangerously close to the regulatory limit of 45%. So current levels are an improvement from then. In addition, effective 28 November 2024, new REIT regulations allow REITs an aggregate gearing limit of 50%.
So technically, Suntec is in the clear. But here’s the thing: most REIT investors, myself included, are still more comfortable when a REIT’s gearing is closer to 40% or below. Once it creeps beyond that, the financial flexibility starts to shrink, and any shock to asset valuations or interest rates can have a big impact. In addition, if we include perpetual debt, Suntec REIT’s gearing increases to 45.9%. This is still skating close to the edge of investors’ comfort.
Next, let’s talk about valuations, which is the key risk that I highlighted previously. Being the denominator of the gearing ratio, there was real risk of a declining valuations due to the double whammy of work-from-home trends affecting office properties and higher interest rates in previous years. My fear was that if valuations decline substantially, the gearing ratio will shoot up resulting in other major risks.
For F Y 2024, across its portfolio, the total fair value of investment properties actually declined by small 1.2% year-on-year in FY2024. This resulted in a stable gearing ratio for the REIT.
But if we dig deeper, we see a clearer picture. For Singapore properties, which make up 78% of the portfolio, saw a modest increase of 1.4% in valuation. This is thanks to continued strong office and retail demand at places like Suntec City and Marina Bay Financial Centre.
For its UK properties, the valuations were down at -1.2%, mainly due to soft rental conditions and leasing downtime at The Minster Building. In addition, Australia properties declined by double digits at -10.2%, with weakness at 55 Currie StREIT in Adelaide being a key drag.
If you recall, in 2023, UK properties were the ones with double digit declines in valuation, while the Singapore properties again came to the rescue.
What this trend of valuation changes shows is a tale of two portfolios—Singapore assets are holding up, while overseas assets continue to see pressure. But there is a silver lining here. I believe the latest numbers suggest that the valuation risks are starting to stabilise. This follows the stabilisation of interest rates in the UK and Australia, resulting in more stable property valuations in these overseas markets. The worst might be behind us—at least for now.
2. Interest Rates – Still Climbing Up That Hill
Suntec’s average financing cost rose to 4.06% in F Y 2024, an increase from 3.84% in F Y 2023. The proportion of fixed or hedged debt is now just 58%, down from 61% the year before. That’s low compared to other blue-chip REITs, and it means Suntec is more exposed to rising rates.
More troubling is that more than $600 million in debt matures in 2025, not to mention another hefty $200 million in perpetual securities due in October 2025. In addition, the little triangle indicate that all of the around $600 million in debt is fixed rate loans or hedged. This means that these debts are likely to be at relatively low rates currently. Refinancing these debts is likely to push up the average financing cost, and the impact might not be mild. Unless there are meaningful asset sales or refinancing at better rates, the pressure on DPU will persist.
On the other hand, Singapore interest rates have been declining recently, alongside declines in US interest rates. If this trend continues, there’s a chance this impact could be milder than expected. In addition, there was another surprise from prudent capital management – Suntec REIT refinanced about $950 million of debt in F Y 2024 which resulted in interest expenses savings of some $3.1 million p.a..
These trends are definitely positive, and if they continue, the interest rate risks for Suntec REIT might finally be mitigated. But for now, I keep a cautious stance to the uncertainty of refinancing the outsized amount of debt maturing this year.
Before we move on to the next point — which I actually think is a brighter spot for Suntec REIT — if you’ve found the content useful so far, do give this uncle a ‘like’! It’s a small gesture that helps me keep doing what I do best: tracking potential turnaround REITs that might just deserve a second chance. Alright, let’s jump right back in.
3. Divestments – Some Progress, and a Welcome Change in DPU Strategy
Let’s get to something I’m personally happy about.
In 2024, Suntec REIT finally made a shift in its capital management strategy that I’ve long been hoping for — it stopped using capital distributions to prop up dividend yields. Previously, it had used proceeds from divestments to boost DPU, which might have made the numbers look nicer in the short term but wasn’t sustainable. I’ve argued that better use of the proceeds from divestments would be to repay borrowings given interest rates were going up.
In F Y 2024, $58.3 million in strata office was divested at Suntec Tower — done at 24% above book value, and none of it was distributed to investors! Although that sounds weird, coming from a dividend-focused investor, to me, that’s a clear and welcome signal that management is starting to prioritise long-term financial health over short-term optics.
Now, of course, this had an impact on the reported numbers. F Y 2024 DPU fell 13.2% year-on-year — that sounds scary at first glance. But let’s be clear: the bulk of this drop was due to the absence of capital distribution. Operational DPU — which is the part derived from recurring rental income and actual operating performance — only declined by a much smaller 2.3%. So from my perspective, the lower headline DPU is not a fresh concern, but rather a side effect of a decision that I think is beneficial in the long run. It forces the REIT to stand on its own operating strength.
Time for another bold step?
That said, this positive step alone is not enough. While the divestments helped slightly, they’re still nowhere near sufficient to solve the balance sheet pressure. Selling strata units, one slice at a time, is a slow process — more like chipping away at the problem than tackling it head-on.
If Suntec REIT truly wants to reduce its high gearing of 42.4% meaningfully, and resolve this overhang over investors’ concerns, it needs to be bolder. Perhaps it’s time to look at divesting a full asset, especially in Australia where some of the properties are underperforming or facing headwinds. The occupancy rates for this Australian properties are below 85%, which is a drag on the overall portfolio. Such a larger sale help repay some of the around $600 million debt maturing in 2025, or the $200 million in perpetual securities due in October 2025. If that happens, the gearing ratio could fall closer to 40%, which might finally give investors on the sidelines a reason to take a second look.
So while I’m pleased with the improved capital discipline and honest accounting of the DPU, I’m still watching closely. The REIT has started to move in the right direction — now it needs to follow through with bigger, more decisive steps.
The Dividend Uncle’s Take – Still a Shadow Over Suntec REIT?
If you ask me, there’s still a lingering overhang—some unresolved concern—hovering over Suntec REIT. Yes, the valuations have somewhat stabilised, the gearing didn’t spike above danger levels, and operationally, Singapore assets are pulling their weight. But for this REIT to really break out from its stubbornly low price levels, the REIT need to do more.
In my view, the number one thing Suntec REIT needs to do is bring its gearing meaningfully down—perhaps to below 40%. That might finally restore confidence among long-term investors who have been sitting on the sidelines, waiting.
And here’s the thing—there may actually be an opportunity to do just that. Having had the courage to stop distributing the proceeds of capital divestments, resulting in the dividend yield falling to 5.3%, I’m waiting for another bold move such as disposing a whole overseas asset.
If it sells one of its Australian assets, they could raise the funds to repay a substantial portion of its debt coming due. And based on my own back-of-the-envelope math of repaying $200 million, gearing could drop to about 40.7%. That would likely have a substantial impact on investor sentiment. Not perfect, but it would signal to the market that the REIT is serious about righting the ship.
But—and this is a big “but”—this depends on so many moving parts. It depends on the market staying stable enough to support further divestments. It depends on demand for Suntec’s strata units remaining strong. It depends on finding a decent deal for any Australian asset sale. And most of all… it depends on the will and commitment of the REIT manager.
Let’s not forget, what’s good for unitholders might not always be good for the manager. REIT manager fees are based on assets under management or A.U.M. If you start selling off properties to repay debt, A.U.M. falls—and so does their fee income. So the incentives aren’t perfectly aligned. But for the long-term health of the REIT, I truly hope the manager will do the necessary, even if it means making short-term sacrifices. Of course, I recognise they face many internal and external constraints we outsiders can’t see. Still, I’m watching this part closely.
If they can execute well on these divestments and strengthen the balance sheet, sentiment can turn quickly. But until then, I’m keeping a cautious eye—not jumping in, but not writing it off either.
Alright folks, that’s all for today. Let me know whether you are holding on to Suntec REIT, and give me your comments on my assessment of the REIT so far.
And finally, remember to ‘like’ and subscribe to The Dividend Uncle channel so you won’t miss a second of my personal reviews or opinions which you may like or even hate! Until next time, happy investing.
The Dividend Uncle 
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