Suntec REIT Earnings: Lower Our Uncertainty Rating to Medium as Interest-Rate Headwinds Subside

We retain our fair value estimate of SGD 1.38 per unit for Suntec REIT after an in-line second-half 2024 performance. Distribution per unit fell 15.9% year on year to SGD 0.0315 due to higher financing costs, the absence of capital distribution, and vacancies at 55 Currie Street and The Minster Building. These were slightly offset by better operating performances at its Singapore and Sydney properties. We also lower our Morningstar Uncertainty Rating to Medium from High as we think that interest-rate headwinds have subsided given the interest rate pivoted in September 2024. While we note that the trust’s aggregate leverage ratio remains relatively high at 42.4% as of end-2024, we think that the risks of it crossing the 50% limit set by the Monetary Authority of Singapore are low as it would mean that the trust’s asset values need to decline by 15%. For its Singapore properties, we think this is unlikely given the strong performances, while for its overseas properties, the Australian and UK portfolios were already revalued 10.5% and 1.2% lower, respectively, as of end-2024. We think the units are undervalued currently and like the trust for its portfolio of high-quality Singapore assets that underpin a stable earnings profile.