JP Morgan is expecting further gains in DPU. “We upgrade Suntec REIT to overweight with a higher December 2026 price target of $1.45, as we believe Suntec REIT is on the cusp of a three-year 6.4% DPU CAGR on the back of improving top-line and lower interest costs. We see a substantial improvement in the funding environment for Suntec REIT with cost of debt falling to 3.8%/3.6%/3.4% in FY2025, FY2026 and FY2027 (respectively) from 4.1% in FY2024. This is coupled with a gradual top-line recovery from FY2026 on backfilling of vacancies, positive reversions and anticipated restart of divestments with a more conducive rate environment,” JP Morgan explains.
According to JLL, Sydney’s CBD 20-year average sublease vacancy rate is 1.3% and the consultant is expecting the rate to trend lower. “This is likely as demand remains steady while new office completions are limited compared to the supply influx over the past couple of years.”
The JLL report adds that TPG, an anchor at 177 Pacific Highway, a Suntec REIT property, is moving to Barangaroo, a precinct in Sydney’s CBD.
Suntec REIT owns 177 Pacific Highway and 21 Harris Street in Sydney; 477 Collins Street and Southgate Complex in Melbourne; and 55 Currie Street in Adelaide. The average committed occupancy rate in Australia was 88.6% as at June 30, but with 55 Currie at just 52.4%, which is being backfilled.
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“Suntec’s top 10 office tenant, TPG Telecom (107,360 sq ft, 2.1% of December 2024 office gross rental income), is vacating 177 Pacific Highway in North Sydney for 200 Barangaroo Avenue. However, we believe the lease is only due in FY2028 as there are no expiries at the property in FY2025-2027, based on Suntec REIT’s annual report. Suntec REIT has backfilled three floors at 25%-30% reversions and we expect income contribution to restart in 1Q2026,” JP Morgan says.
Suntec REIT is also in discussions to backfill occupancies at The Minster Building in London, to 94% (from 85% currently), according to JP Morgan. “We expect better contribution from Suntec City Mall (+2%) with the completion of the AEI/linkbridge to Guoco Midtown in 2HFY2025,” its report adds.
The most interesting part of the JP Morgan report is its deep dive into Suntec REIT’s debt structure. Out of Suntec REIT’s total debt of $4.06 billion, only $170 million is priced at 4%. The rest of the debt is likely to be re-priced at lower rates.
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83% of Suntec REIT’s debt is denominated in Singapore dollars, where three-month Sora has fallen from more than 3% on Jan 2 to 1.68% as of Aug 21.
While Suntec REIT refinanced debt at higher costs in 1HFY2025, overall financing costs still fell 0.24% pts in 1HFY2025 to 3.82% from 4.06% in 4QFY2024 on lower floating Sora rates, the report states.
JP Morgan is expecting DPU growth of 1.9%, 9.2% and 8.4% in 2025, 2026 and 2027 respectively. “Our price target of $1.45 implies FY2026/2027 yield of 4.8%/5.1% at 0.5/0.6 s.d. below mean forward yield/yield spread of 6.3%/ 4.8% which we believe is justified given strong DPU growth.”
