Suntec REIT Earnings: Improving Balance Sheet Through Divestments, but Leverage Remains High

Suntec REIT’s second-half 2023 results were broadly in line with our expectations. Impressively, the trust got through 2023 without a rights issue despite concerns over its high gearing and weak credit metrics amid a rising interest rate environment. We think that credit should be given to its management for steering the trust through the challenging environment and delivering on its target to divest approximately SGD 100 million of assets in 2023 to shore up its balance sheet. That said, the trust still ended the year with a relatively high gearing of 42.3% and a low interest coverage ratio of 2 times. Management guided for another SGD 100 million of divestments and aims to take its gearing down to 40% and below in 2024. While we think SGD 100 million of divestments is achievable, we estimate that the trust needs to divest SGD 400 million worth of assets to bring its gearing below 40%. We expect the environment for divestments to improve in the second half of 2024 after the Federal Reserve starts to cut rates from March 2024 onward.