Between last Friday (28 February 2020) and yesterday (05 March 2020), I have added 4 new companies to my personal long-term investment portfolio. They are Suntec REIT (SGX:T82U), CapitaLand Mall Trust (SGX:C38U), Mapletree North Asia Commercial Trust (SGX:RW0U), and DBS Group Holdings (SGX:D05). You can check out my current long-term investment portfolio here.

Just like what I had done in the previous version of “The Singaporean Investor”, I will be sharing with you my investment decisions for each and every company I add to my portfolio, starting with Suntec REIT today.

Suntec REIT’s Portfolio as at 31 December 2019

As at the end of FY2019 on 31 December 2019, Suntec REIT’s portfolio consists of properties in both Singapore and Australia:

Singapore:

  • Suntec City Retail
  • Suntec City Office
  • Suntec Singapore Convention & Exhibition Centre (60.8% interest)
  • One Raffles Quay (one-third interest)
  • Marina Bay Financial Centre Towers 1 & 2 (one-third interest)
  • Marina Bay Link Mall (one-third interest)
  • 9 Penang Road (30.0% interest)

Australia:

  • 177 Pacific Highway, Sydney
  • Southgate Complex, Melbourne (50.0% interest)
  • Olderfleet, 477 Collins Street, Melbourne (50.0% interest)
  • 55 Currie Street, Adelaide

Among the properties in the REIT’s portfolio in Singapore, 9 Penang Road is still under development (even though it has already obtained temporary permit in October 2019). In Australia, the Olderfleet, 477 Collins Street, is still under construction and is expected to achieve practical completion by mid-2020.

Additionally, I have also noticed in the REIT’s fourth quarter and full year 2019 results presentation that their acquisition of 21 Harris Street, Pyrmont, Sydney, will be completed in the first quarter of calendar year 2020.

These properties, when developments and acquisitions are completed, along with the newly acquired 55 Currie Street in Adelaide in September 2019, will contribute towards the REIT’s gross revenue ahead.

Historical Financial Performance between FY2010 and FY2019

The following table is the REIT’s gross revenue, net property income, and distributable income to unitholders between FY2010 and FY2019:

Financial
Year
FY2010FY2011FY2012FY2013FY2014
Gross
Revenue
(S$’mil)
$249m$270m$262m$234m$282m
Net
Property
Income
(S$’mil)
$193m$193m$162m$149m$192m
Distributable
Income to
Unitholders
(S$’mil)
$182m$221m$213m$211m$230m
Financial
Year
FY2015FY2016FY2017FY2018FY2019
Gross
Revenue
(S$’mil)
$330m$329m$354m$364m$367m
Net
Property
Income
(S$’mil)
$229m$225m$244m$241m$236m
Distributable
Income to
Unitholders
(S$’mil)
$252m$254m$263m$267m$263m
Suntec REIT's Key Financial Performance between FY2010 and FY2019

Weaker year-on-year (y-o-y) performances were recorded in FY2012, FY2013, and FY2016, due to:

  • FY2012: Lower retail revenue from Suntec City Mall and loss of income from the divestment of CHIJMES
  • FY2013: Partial closure of Suntec City Mall for asset enhancement initiative works
  • FY2016: Loss of income after the divestment of Park Mall

Over the 10 years I have looked at above, its gross revenue, net property income, along with distributable income to unitholders grew at the following compounded annual growth rates:

  • Gross Revenue: 4.0%
  • Net Property Income: 2.0%
  • Distributable Income to Unitholders: 3.8%

Personally, I am satisfied with the growth rate exhibited by the REIT over the past 10 years.

Portfolio Occupancy Profile between FY2010 and FY2019

Another thing I look at when I evaluate a REIT is its occupancy profile, and the following is the REIT’s occupancy profile for both its Singapore and Australia properties (do note that as the REIT only made its foray into Australia in 2016, occupancy rates for its Australian portfolio is only between FY2016 and FY2019):

Singapore Properties:

Financial
Year
FY2010FY2011FY2012FY2013FY2014
Retail98.0%97.5%98.1%99.7%97.3%
Office98.8%99.2%100.0%99.6%99.3%
Financial
Year
FY2015FY2016FY2017FY2018FY2019
Retail97.9%97.9%99.0%99.6%99.5%
Office99.3%99.7%98.5%98.5%99.1%
Suntec REIT's Retail and Office Portfolio Occupancy Rate between FY2010 and FY2019 (Singapore)

Australia Properties:

Financial
Year
FY2016FY2017FY2018FY2019
Retail89.0%91.7%90.9%92.8%
Office95.9%97.3%99.4%97.8%
Suntec REIT's Retail and Office Portfolio Occupancy Rate between FY2016 and FY2019 (Australia)

I like the REIT’s portfolio occupancy profile (for both its Singapore and Australia properties) for the fact that its occupancy rate for both its retail and office properties have been maintained at above 98.0% for most years.

Debt Profile of Suntec REIT between FY2010 and FY2019

A REIT’s debt profile is another area I focus my attention on, and the following is Suntec REIT’s debt profile over a 10-year period:

Financial
Year
FY2010FY2011FY2012FY2013FY2014
Gearing
Ratio (%)
38.4%37.3%38.3%39.1%38.4%
Interest
Coverage
Ratio
(times)
4.6x4.4x4.1x3.7x4.0x
Average
Cost of
Debt (%)
2.8%2.8%2.8%2.5%2.5%
Financial
Year
FY2015FY2016FY2017FY2018FY2019
Gearing
Ratio (%)
37.1%37.7%36.4%38.1%37.7%
Interest
Coverage
Ratio
(times)
4.1x4.0x3.9x3.3x2.9x
Average
Cost of
Debt (%)
2.9%2.6%2.6%2.8%3.1%

If there is one thing about the REIT that is not so ideal (in my personal opinion), it is the debt profile – over the years, it has been maintained at close to 38.0%, which is a little on the high side in my opinion.

For the latest financial year (i.e. FY2019), its gearing ratio, at 37.7%, is pretty close to the regulatory limit of 45.0%, which makes it kind of difficult for the REIT to make further acquisitions.

Another thing to note is that, its average cost of debt have also gone up in recent years – from 2.6% in FY2016 to 3.1% in FY2019 – the highest in 10 years.

I will be keeping a close watch on the REIT’s debt profile in the coming quarters ahead.

Distribution Payout to Unitholders between FY2010 and FY2019

The management of Suntec REIT declares a distribution to unitholders on a quarterly basis (which is something I like.)

Over the past 10 years, its total distribution payout to unitholders is as follows:

Financial
Year
FY2010FY2011FY2012FY2013FY2014
Distribution
Per Unit
(S$’cents)
9.859
cents
9.932
cents
9.490
cents
9.328
cents
9.400
cents
Financial
Year
FY2015FY2016FY2017FY2018FY2019
Distribution
Per Unit
(S$’cents)
10.00
cents
10.00
cents
10.01
cents
9.988
cents
9.507
cents
Suntec REIT's Distribution Per Unit to Unitholders between FY2010 and FY2019

While its top- and bottom-line have grown over the years, its distribution payout to unitholders have not – in fact, its 9.507 cents/unit of payout in FY2019 is lower than the 9.859 cents/unit of payout in FY2010.

Another thing to note is that, since FY2017, its distribution payouts have slipped.

Should the REIT’s distribution payout for the coming financial years (i.e. FY2020 and FY2021) continues to slide, and that there are no evidences to show that the distribution payout to unitholders will recover, I may re-consider my position on the REIT.

Why S$1.75?

Frequent readers of “The Singaporean Investor” will know that I make use of both fundamental and technical analysis to make all my investment decisions.

I derived my investment price of S$1.75 from technical analysis – based on the REIT’s unit price movement over the years, especially since November 2012, its unit price have largely moved between S$1.64 and S$1.97 (I have highlighted this in a black rectangular box below):

Unit Price of Suntec REIT has been Moving in a Range of between S$1.64 and S$1.97 since November 2012
Unit Price of Suntec REIT has been Moving in a Range of between S$1.64 and S$1.97 since November 2012

Zooming into its unit price movements since November 2012, notice how the REIT’s unit price tend to bounce back up when it hits the S$1.75 support line (I have pointed them out with up arrows below):

Notice How the REIT's Unit Price Tend to Bounce Back up Whenever it Hits the S$1.75 Support line (Denoted by Brown Up Arrows)
Notice How Suntec REIT’s Unit Price Tend to Bounce Back up Whenever it Hits the S$1.75 Support line (Denoted by Brown Up Arrows)

This was how I derived my S$1.75 entry price. Based on this price, and a total distribution payout of 9.507 cents/unit in FY2019, it represents a distribution yield of 5.4%, which is pretty decent in my opinion.

When Will I Re-consider My Position in Suntec REIT?

I will re-consider my position in the REIT should the distribution payout to unitholders were to continue to fall in the next few years (i.e. in FY2020 and FY2021) and at the same time, there is no indication of a recovery. I will also re-consider my position in the REIT if its top- and bottom-line performance were to record successive years of y-o-y decline in the coming years.

What’s Next?

As a unitholder of Suntec REIT, I will be providing a summary of the REIT’s annual reports when it is published (do keep a lookout for the post for those of you who are interested to read my summary), along with attending the REIT’s annual general meeting and provide a written summary thereafter (something for you to keep a lookout for as well if you’re interested.)

Disclaimer: All opinions that you may find in the post above are solely mine, based on my analysis of the REIT, and they are meant for educational purposes only. While I am a unitholder of Suntec REIT at the time of writing, this post definitely does not serve as a buy or sell call for the REIT. Please do your own due diligence before you make any investment decisions.

 

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