Suntec Reit expects better H2 performance on 'circuit breaker' easing

THE manager of Suntec Real Estate Investment Trust (Suntec Reit) on Tuesday said it expects the trust's performance in the second half of the year to improve as Singapore eases out of the "circuit breaker", and on additional contribution from completed developments.

The manager was responding to shareholder questions - submitted in advance of Suntec Reit's annual general meeting on June 16 - about the impact of the Covid-19 pandemic on its properties.

Rental revenue for Suntec Reit's Singapore office portfolio is expected to remain "robust" due to the completion of 52 per cent of FY2020 renewals and strong rent reversions achieved in previous quarters, the manager said.

Rent reversions are also expected to remain strong for FY2020, underpinned by a limited office supply, while portfolio occupancy is expected to remain within a "healthy" market range of 95 per cent.

Early terminations by tenants in vulnerable sectors is anticipated, but this potential exposure constitutes less than 1 per cent of the Singapore office portfolio's net lettable area, the manager added.

As for the space to be vacated by UBS in One Raffles Quay and Suntec City Office, while 43 per cent of the space has been pre-committed, the remaining vacant space "is likely to take a longer time to backfill", the manager said.

A NEWSLETTER FOR YOU

Tuesday, 12 pm

Property Insights

Get an exclusive analysis of real estate and property news in Singapore and beyond.

Sign Up

It added that it would "continue to proactively manage the expiring leases amidst the current market slowdown, with tenant retention a key focus".

For Suntec City Mall, the manager said rental revenue for the mall will be impacted due to the rental assistance given to tenants.

It is granting tenants that face an extended closure period, such as those in the entertainment segment, with additional rent assistance on top of the four months of total rent assistance it has since provided. This assistance includes property tax rebates and cash rebates granted by the government.

Qualifying small and medium enterprise (SME) tenants will also be granted rent deferments under a new rental relief law.

To help tenants manage cash flow, the manager is giving them the option to draw down one month of their cash security deposit.

They will also have access to an SME Help Fund launched by the manager's parent company ARA Asset Management, Straits Trading and JL Family Office.

Due to non-renewals, overall mall occupancy may trend closer to the nationwide average of low 90 per cent, the manager said.

Although it achieved "double-digit positive rent reversion" in Q1 from the renewal of about one-third of expiring leases, rent reversion for remaining quarters is likely to be in the negative range due to weaker market demand.

As for retail sales, the drop in sales due to low tourist arrivals was partially shielded thanks to the mall's primary catchment of office workers and local residents.

Shopper traffic fell significantly, but has seen gradual recovery in Q3 as safe distancing measures are eased, the manager said.

It added that "aggressive marketing plans", coupled with the mall's strategic location and transport connectivity, will drive traffic back to pre-pandemic levels of more than four million shoppers a month.

As part of these plans, the manager will roll out technologies to address changes in shopper behaviour and spending habits.

For example, the mall will host its first live-streaming shopping festival, where shoppers can watch the livestream and make purchases via the Shop Live platform on the Suntec+ app.

They can then pick up their purchases directly from retail stores in the mall or have them delivered through a courier service.

For Suntec Convention, the manager said the property will be closed till Aug 2 to reduce operating costs, and the temporary closure may be extended if mandated measures are prolonged.

Conventions-related income contribution will be "significantly affected" for FY2020 as recovery remains slow in the meetings, incentives, conventions and exhibitions industry, it added.

As for its portfolio of assets across three cities in Australia, the manager said its office portfolio will "remain resilient, underpinned by strong occupancy, long weighted average lease expiries, with minimal lease expiry in 2020".

Despite a dip in income resulting from mandated rent assistance to qualifying SME tenants, overall income is expected to improve year on year, thanks to contributions from its newly-completed assets 21 Harris Street and 477 Collins Street.

The manager plans to introduce collaborative workspaces and technology infrastructure in its Australian properties to address the trend towards remote and flexible workspaces.

It will also add amenities such as a fitness programme to strengthen the value proposition of these properties.

The manager said that its projects under development, namely 9 Penang Road and 477 Collins Street, were completed on schedule. It is now reviewing the potential redevelopment of the retail podium of Southgate Complex and the construction of a new office tower.

Units of Suntec Reit were trading at S$1.53 as at 10.08am on Tuesday after the announcement, up S$0.07 or 4.8 per cent.