9 Things Investors Should Know About The Straits Times Index Reserve List Member, Suntec Real Estate Investment Trust

Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI), is made up of 30 companies.

They include companies many Singaporeans are likely to be familiar with, such as: Stock market regulator and operator Singapore Exchange Limited  (SGX: S68); and newspaper publisher Singapore Press Holdings Limited  (SGX: T39).

While the 30 companies carry weight in Singapore’s stock market – and some of them have huge roles to play in our local economy – they are not indispensable. This means that they can be booted out of the index and be replaced if their market capitalisation and/or trading liquidity starts dwindling.

Early last week, my Foolish colleague, Chin Hui Leong, introduced the latest list of five candidates that make up the STI Reserve List. These five stocks are next-in-line to replace any of the Straits Times Index’s constituents should they drop out.

The five candidates are Singapore Post Limited (SGX: S08)Keppel REIT (SGX: K71U)Suntec Real Estate Investment Trust (SGX: T82U)First Resources Ltd (SGX: EB5) and Mapletree Commercial Trust (SGX: N2IU).

In this article, I want to zoom in on Suntec REIT. Here are eight things investors should know about the real estate investment trust and its business:

  1. Suntec REIT is a retail cum office REIT that owns a portion of the Suntec City property in Singapore. The REIT owns the retail mall portion of Suntec City; certain office units in Suntec Towers One, Two, and Three; all of Suntec Towers Four and Five; and a 60.8% interest in Suntec Singapore Convention & Exhibition Centre.
  2. Outside of Suntec City, Suntec REIT also owns approximately 30% of One Raffles Quay; 33% of Marina Bay Financial Centre Towers 1 and 2; 33.3% of Marina Bay Link Mall; and 30% of Park Mall
  3. Beyond Singapore, Suntec REIT has full ownership of a commercial building located at 177 Pacific Highway, North Sydney Australia which saw practical completion in August this year. Even before the property was fully constructed, it has managed to achieve 100% committed occupancy and has tenants such as Vodafone, Cisco and CBRE.
  4. For its fiscal third quarter (the three months ended 30 September 2016), the REIT’s gross revenue and net property income slipped by 4.3% and 2.1% year-on-year largely due to the sale of Park Mall in December 2015 and a lower contribution from Suntec Singapore. These were offset by the opening of Phase 3 of Suntec City mall and contributions from 177 Pacific Highway. Gross revenue and net property income came in at S$82.4 million and S$57.2 million, respectively.
  5. In spite of lower gross revenue and net property income, Suntec REIT’s distribution per unit for the quarter actually increased by 0.5% year-on-year to 2.535 Singapore cents.
  6. The REIT’s office properties reported a strong occupancy rate of 99.3% in the fiscal third-quarter while the retail portfolio ended the quarter with an occupancy rate of 97.3%.
  7. In August 2016, Suntec REIT announced the acquisition of an initial 25% interest in Southgate Complex and this is expected to be completed by the end of 2016, marking the REIT’s second foray into Australia. Yeo See Kiat, the chief executive of Suntec REIT’s manager, said, “The iconic Southgate Complex is a strategic fit with Suntec REIT’s portfolio of quality assets and in line with our strategy to expand our footprint in Asia Pacific.”
  8. Going forward, Suntec REIT’s strategy to drive shopper traffic to its malls amid weak consumer sentiment, labour constraints, and competition from e-commerce is to “[focus] on strengthening tenancy mix with flagship shops and new-to-market concepts and preserving stronger tenants.” It also has plans to enhance its Suntec Rewards loyalty programme to increase customer loyalty by having exclusive targeted tie-ups to engage members and encourage spending in Suntec City.
  9. At a closing unit price of S$1.69 on Monday, the REIT has a historical price-to-book ratio of 0.79 and a trailing distribution yield of around 6%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Singapore Exchange. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.