Suntec REIT (SGX: T82U) is a Singapore-listed REIT, where it invests in income-producing properties used for office and/or retail purposes.

At the time of writing, it has properties in the following countries with a total assets under management of over S$12 billion:

• In Singapore, it owns Suntec City, a 66.3% interest in Suntec Singapore Convention & Exhibition Centre, as well as a one-third interest in One Raffles Quay, Marina Bay Financial Centre Towers 1 and 2, and Marina Bay Link Mall.
• In Australia, it owns 177 Pacific Highway and 21 Harris Street in Sydney, a 50.0% interest in Southgate Complex, Olderfleet, 477 Collins Street in Melbourne, as well as 55 Currie Street in Adelaide.
• In the United Kingdom, it owns a 50.0% interest in Nova Properties (which comprises Nova North, Nova South, and The Nova Building), and The Minster Building in London.

Yesterday evening (25 July), the REIT released its results for the 2nd quarter, as well as the 1st half of the financial year ended 30 June (i.e., 1H FY2024), and in this post, you will find a review of its latest financial performance, portfolio occupancy and debt profile (particularly, my focus is on whether its aggregate leverage and interest coverage ratio have continued to record improvements, following the REIT’s divestment of strata units of Suntec office to pare down debt), as well as its distribution payout to unitholders.

Let’s begin:

Financial Performance (1H FY2023 vs. 1H FY2024)

My Observations: Suntec REIT’s latest financial performance for the 1st half of FY2024, compared to a year ago, is largely a negative one – with the only positive being the small 1.2% improvement in its gross revenue – which is mainly due to higher revenue from Suntec City (mainly due to higher retail revenue arising from higher rent), Suntec Singapore (as a result of higher revenue from MICE, long-term licenses and advertising), and 21 Harris Street (from higher occupancy and rent). However, this was partially offset by lower revenue from 177 Pacific Highway (due to incentives given to new leases and renewals), 55 Currie Street (due to lower occupancy arising from the exit of an anchor tenant), Olderfleet, 477 Collins Street (due to a weaker Australian Dollar), as well as The Minster Building (due to lower occupancy from the re-entry of a co-working tenant).

As a result of a 6.9% jump in property operating expenses, its net property income fell by 1.5% to S$151.0m.

Distributable income to unitholders fell by 11.8% to S$88.7m due to the absence of distribution income from capital of S$11.5m declared in the same time period last year. Excluding that, its distribution income to unitholders for 1H FY2024 will be in-line with the amount declared last year.

Portfolio Occupancy Profile (Q1 FY2024 vs. Q2 FY2024)

When it comes to reviewing a REIT’s portfolio occupancy profile, my preference is to compare the statistics reported for the current quarter against that reported in the previous quarter.

In the table below, you will find a comparison of Suntec REIT’s portfolio occupancy profile for Q2 FY2024 (ended 30 June) against Q1 FY2024 (ended 31 March):

My Observations: In terms of portfolio occupancy, it was a mixed bag, with improvements seen in its Australia (Office & Retail) properties, and slight declines seen in its retail and office properties in Singapore.

For Singapore (Retail), the slight decline in its portfolio occupancy was due to a small decline in the occupancy rates of Suntec City Mall (from 95.8% in Q1 FY2024 to 95.6% in Q2 FY2024), as well as in Marina Bay Link Mall (from 97.1% in Q1 FY2024 to 96.7% in Q2 FY2024).

For Singapore (Office), the slight dip in its portfolio occupancy was due to a 1.8 percentage point (pp) fall in the occupancy in MBFC Towers 1 & 2 (from 99.2% in Q1 FY2024 to 97.4% in Q2 FY2024).

For Australia (Office & Retail), the slight improvement in its portfolio occupancy was due to a 0.8pp increase in occupancy in Southgate Complex (from 86.5% in Q1 FY2024 to 87.3% in Q2 FY2024).

One thing to note about the occupancy rate of all the properties that Suntec REIT has is that, apart from its properties in Australia (particularly Southgate Complex at 87.3%, and 55 Currie Street at 56.2%), the other properties have an occupancy rate of above 90% – which is very strong.

Debt Profile (Q1 FY2024 vs. Q2 FY2024)

If you have been following my updates on Suntec REIT, you should be aware that I have been keeping a close tab on its aggregate leverage and interest coverage ratio – which is currently one of the highest and lowest among the 40+ listed REITs in Singapore.

At the same time, I also understand from my email correspondences with the REIT’s investors’ relations that they are targeting to bring down the aggregate leverage to about 40% through divesting some strata units of Suntec office, as well as some of the Australia office properties – however, for the latter, the REIT has met with difficulties due to the high interest rate environment, resulting in low demand.

Just like how I have reviewed the REIT’s portfolio occupancy profile in the previous section, in the table below, you will find a comparison of its debt profile statistics recorded for the current quarter against the previous quarter 3 months ago:

My Observations: Debt profile remains more or less the same as the previous quarter. The management is mindful that aggregate leverage is still on the high-side, and is looking to divest mature assets to pare down debt (so far, they have divested S$31.5m of strata units at Suntec City Office Towers at an average price of 27% above book value, with proceeds used to pare down debt).

As far as its debt maturity is concerned, the REIT does not have any borrowings due for refinancing in the 2nd half of FY2024. Here’s the REIT’s borrowings due for refinancing in the coming years ahead: FY2025 – 14.8% (S$631m), FY2026 – 12.4% (S$526m), FY2027 – 21.2% (S$900m), FY2028 or later – 51.6% (S$2,196m).

Distribution Payout to Unitholders

Suntec REIT continues to be one of the few Singapore-listed REITs that have continued to declare a distribution payout to the unitholders on a quarterly basis.

For the current quarter under review, a distribution payout of 1.531 cents/unit was declared – a 12.0% decline from its payout of 1.739 cents/unit last year.

If you are a unitholder of Suntec REIT, do take note of the following dates about its distribution payout:

Ex-Date: 01 August 2024
Record Date: 02 August 2024
Payout Date: 29 August 2024

Together with its payout of 3.476 cents/unit declared in the 1st quarter of FY2024, Suntec REIT’s total distribution payout for the 1st half of FY2024 amounts to 3.042 cents/unit – compared to its payout of 4.81 cents/unit declared last year, it is a 12.5% decline.

CEO Chong Kee Hiong's Comments & Outlook (from the REIT's Press Release)

“The Singapore Office and Retail portfolios continued to achieve robust rent reversions and the convention business maintained strong growth year-on-year. In London, The Minster Building is expected to achieve full occupancy in 2H 24 but leasing pipeline in Adelaide remained weak under existing market conditions.

Suntec REIT continues to remain focused on strengthening the operating performance of our assets and will explore opportunities to divest our mature assets to deliver long-term value to our unitholders.

Outlook Ahead:

Singapore Office Portfolio: The Singapore office revenue will continue to strengthen underpinned by strong occupancies and past quarters of robust rent reversions.

Suntec City Mall: The growth of tenant sales is likely to remain stable and rent reversion is expected to be strong. Revenue from Suntec City Mall is expected to improve, supported by higher occupancy and rent and higher marcoms revenue.

Suntec Convention: Singapore Tourism Board's efforts to boost MICE in Singapore is likely to drive growth for all events type and scale. With the expected growth of the convention business, higher dividend contribution from Suntec Convention is expected.

Australia Portfolio: Nationwide CBD office market occupancy is expected to decline due to supply coming onstream in the second half of 2024. Revenue of 55 Currie Street and Southgate Complex will be impacted by vacancies and higher incentives from weak market conditions.

United Kingdom Portfolio: Occupancy and rental growth in Central London will continue to improve, supported by tight supply and increase in office utilisation. Good quality office assets in prime locations remain well sought after. Revenue for the UK portfolio however, will be weighed down by the leasing downtime of the remaining vacancy at The Minster Building although it is expected to be fully leased by end 2024.”

Closing Thoughts

I am of the opinion that the weakness in terms of higher vacancy rates of some of its properties, particularly 55 Currie Street (where, at an occupancy rate of just 56.2%, it is way lower than the CBD office occupancy by cities at 83.4% – and the weak office rental environment in the country is not aiding the situation), along with a weaker Australian Dollar, is hurting the REIT to a certain extent – and it is quite evident in its financial results.

This is on top of the REIT having just 50+% of borrowings hedged at fixed rates, where, at the current high interest rate environment, the high interest cost is impacting its distribution payout to unitholders – however, with the US Federal Reserve set to make the first interest rate cut in the coming months (the consensus is of the view that we may have 2 interest rate cuts – one in September, and another in December), Suntec REIT will be among the first to benefit, as it has a huge percentage of borrowings at floating rates – the reduction of financing costs from next year will, in my opinion, help in terms of the continued decline in its distribution payout to unitholders.

Moving forward, I will continue to monitor the leasing of 55 Currie Street, and also its debt profile.

With that, I have come to the end of my review of Suntec REIT’s results for the 1st half of FY2024. Do note that all the opinions expressed in this post are purely mine which I am sharing for educational purposes only. They do not represent any buy or sell calls for the REIT’s units. You are strongly to do your own due diligence before making any investment decisions.

Related Documents

• Press Release
• Financial Statements
• Auditor’s Review Report
• Presentation Slides

Disclaimer: At the time of writing, I am a unitholder of Suntec REIT.

The post Suntec REIT's 1H FY2024 Results: A Review of its Performance first appeared on The Singaporean Investor.