Suntec Reit rules out retail acquisitions in Australia, will focus on divestments

[SINGAPORE] The manager of Suntec Real Estate Investment Trust (Suntec Reit) has ruled out acquiring retail assets in Australia, even as its peer, Keppel Reit, recently made its first retail investment there.

Earlier this month, Keppel Reit acquired its first retail mall in Australia, expanding beyond its traditional focus as a pure-play office Reit.

But the chief executive officer of the Reit manager of Suntec Reit, Chong Kee Hiong, said that such a move is not on its cards.

“Everyone has their own strategy,” he said at a briefing on Friday (Oct 24), a day after the release of Suntec Reit’s third-quarter results. “For Suntec, we have articulated that when we go overseas, our (acquisitions) are predominantly office assets, and any retail acquisitions should be ancillary to the building.”

He added that Suntec Reit , which currently owns five office properties in Australia, has not considered any standalone retail assets in the country so far. The Reit’s retail exposure is mostly in its Singapore-based Suntec City property.

Financial performance

For the third quarter ended Sep 30, Suntec Reit posted a distribution per unit (DPU) of S$0.01778, up from S$0.0158 the year before. Distributable income rose 13.4 per cent year on year to S$52.4 million, from S$46.2 million.

The higher DPU and income were driven by stronger operational performance in its Singapore portfolio and lower financing costs. Revenue edged down 0.2 per cent year on year to S$117.5 million, while net property income slipped 1.6 per cent to S$78.5 million.

Gains from the Singapore portfolio were offset by the surrender of three floors at its Sydney property, which have since been backfilled, and lower takings from its London asset.

Divestments to continue

Chong said that opportunities to divest strata office units in Suntec City are improving amid better market sentiment. The manager is maintaining its S$100 million divestment target for these strata offices, as part of its broader strategy to lower its gearing.

In Australia, however, buyers remain “pretty selective”, and the Reit will “continue to watch this space”. Chong said the manager hopes to divest one or two Australian assets with strong occupancy next year.

He added that there are no plans for fresh acquisitions at the moment as the Reit’s valuation remains “way below book”, and its gearing is still relatively high at 41 per cent.

On sponsor ESR’s privatisation

Suntec Reit’s sponsor, ESR, was privatised in July this year, a move aimed at paving the way for the sponsor to focus more on growing its core businesses in logistics and data centres.

On whether the privatisation would affect Suntec Reit, Chong said that there had been no effect on the Reit so far and that the Reit remains a “material” part of ESR’s portfolio.

Likening Suntec Reit’s size to an aircraft carrier, he made the point that it would take time for the privatisation to have any impact on Suntec Reit, relative to other businesses under ESR. “It’s not easy to move an aircraft carrier. It’s easier to turn a small ship,” he said.