Suntec REIT (SGX:T82U) released key updates for the most recent quarter ended 31 March 2020 before the stock market opened this morning (22 April.)

Being a unitholder of the REIT (I have added the REIT to my long-term investment portfolio on 28 February 2020; you can check out all my holdings in my long-term portfolio here), I have gone through its press release and also its latest set of results, and you can find a key summary of it, as well as my personal thoughts, in this post:

Financial Performance (1Q FY2019 vs. 1Q FY2020):

1Q FY20191Q FY2020% Variance
Gross Revenue
(S$’mil)		$89.7m$86.9m-3.1%
Property Operating
Expenses (S$’mil)		$31.5m$32.9m+4.4%
Net Property
Income (S$’mil)		$58.2m$54.0-7.2%
Distributable
Income to Unitholders
(S$’mil)		$65.4m$49.6m-24.1%

Looking at the REIT’s latest set of financial results, no surprises here that it was a weakened one for the REIT on a year-on-year (y-o-y) basis.

The 3.1% y-o-y drop in its gross revenue to S$86.9m was attributed to a drop in advertising and promotional income in Suntec City Mall, and lower convention revenue at Suntec Convention (where the number of events shrunk from 453 in Q1 FY2019 to just 239 in Q1 FY2020), offset by higher rental income at Suntec City Office and mall, and also contribution from the REIT’s newly acquired mall in 55 Currie Street in Adelaide, Australia.

Coupled with a 4.5% y-o-y increase in its property operating expenses, the REIT’s net property income fell by 7.2% y-o-y to S$54.0m.

Finally, its distributable income to unitholders fell by 24.1% y-o-y to S$49.6m due to the following reasons:

  • Absence of dividend contribution from Suntec Singapore
  • Lower advertising and promotional income from Suntec City Mall
  • Lower occupancy at Towers 1 and 2 of the Marina Bay Financial Centre
  • Weakened Australian Dollar compared to the Singapore Dollar
  • A sum of S$5.5m retained to conserve cash reserves and assist tenants amid the Covid-19 outbreak

My Thoughts: I had expected the REIT’s top- and bottom-line to report a weaker set of results as a result of Covid-19 outbreak in Singapore. I’m not surprised by the REIT’s latest set of financial results.

Portfolio Occupancy Profile (Q4 FY2019 vs. Q1 FY2020):

For the REIT’s portfolio occupancy profile, I will be comparing its most recent profile (i.e. Q1 FY2020 ended 31 March 2020) against the previous quarter (i.e. Q4 FY2019 ended 31 December 2019):

Q4 FY2019Q1 FY2020
Retail (Singapore)99.5%98.4%
Office (Singapore)99.1%98.8%
Retail (Australia)92.8%92.8%
Office (Australia)97.8%97.7%

My Thoughts: From the table above, you can see that, while the REIT’s overall portfolio occupancy from its Australian properties remained resilient, its properties in Singapore – for both its retail and office, have suffered slight drops.

However, having said that, its retail and office occupancies were both higher than the market – with the secondary market occupancy for retail at 98.2%, and the overall CBD occupancy rate at 95.0%.

Debt Profile (Q4 FY2018 vs. Q1 FY2020):

Just like the portfolio occupancy profile, I will also be comparing the REIT’s most recent debt profile (i.e. Q1 FY2020 ended 31 March 2020), with its debt profile in the previous quarter (i.e. Q4 FY2019 ended 31 December 2019), to find out if its debt profile have improved or worsened:

Q4 FY2019Q1 FY2020
Gearing Ratio
(%)		37.7%37.7%
Interest Coverage
Ratio (times)		2.9x2.7x
Average Term to
Debt Maturity (years)		3.1 years3.4 years
Average Cost of Debt
(%)		3.05%2.92%

My Thoughts: The bright spots here are that, compared to the previous quarter, its average cost of debt went down to 2.92%, and the average term to debt maturity also went up slightly to 3.4 years.

Also, the REIT’s gearing ratio remained the same compared to the previous quarter, at 37.7%.

The only negative here is that the REIT’s interest coverage ratio has went down slightly compared to the previous quarter.

Having said that, I am still satisfied as far as the REIT’s latest debt profile is concerned.

Distribution Per Unit Payout to Unitholders (Q1 FY2019 vs. Q1 FY2020):

Q1 FY2019Q1 FY2020% Variance
Distribution Per
Unit (S$’cents)		2.434 cents1.760 cents-27.7%

My Thoughts: Again, no surprises here that the current quarters distribution per unit suffered a 27.7% y-o-y drop. The ex-date for this quarter’s distribution payout will be on 27 April, record date on 30 April, and payout date on 28 May.

Important Highlights by Suntec REIT’s CEO, Chong Kee Hiong:

  • The REIT’s CEO explained that as the Covid-19 crisis deepens in Q2 with continued weakness in the convention and retail businesses, the Manager had retained 10% of the distributable income from operations, as well as held back its capital distribution in Q1 FY2020.
  • While the REIT’s retail malls’ footfall and tenant dales declined by 22.0% and 20.2% y-o-y respectively due to Covid-19, Suntec City Mall still managed to record a positive rental reversion of +16.1% in the first quarter.
  • The REIT completed the aquisition of 21 Harris Street in Australia on 06 April 2020. Together with this acquisition, and the completion of Olderfleet, 477 Collins Street in mid-2020, the REIT’s income in the coming quarters will be improved.
  • Moving forward, the CEO highlighted that Suntec City will be waiving the rents of all their retail tenants in April 2020, as well as passing the full savings of the property tax rebates to its mall tenants in May 2020 ahead of them receiving it from the Inland Revenue Authority of Singapore.
  • While the REIT’s Singapore office portfolio is expected to remain resilient in 2020, its Suntec City Mall is expected to register a substantial decline in shopper traffic in the quarter ahead due to safe distancing and Circuit Breaker measures, with a gradual recovery expected in Q3 if the situation improves; rental reversion is likely to be in the negative range due to weaker market demand from retailers. The CEO added that REIT is also considering a temporary closure of the convention centre if the Covid-19 situation does not improve.
  • Finally, in Australia, while businesses were also affected by the Covid-19 outbreak in the country, and that it was mandated by law that a partial rent rebate and deferments be granted to eligible SME tenants who suffered a revenue loss of 30.0% or more, but the CEO updated that it is not expected to have a major impact on the REIT’s Australia portfolio as the affected office and retail tenants constitute approximately 7% and 6% of the Australia’s portfolio by committed net lettable income. He also added that the REIT’s Australia office portfolio will remain resilient, underpinned by strong occupancy and long lease tenures with minimal lease expiry in 2020.

In Conclusion:

From the above, the REIT’s weaker financial performance was attributed to Covid-19, which in my personal opinion is a temporary one-off event as, upon the virus being successfully controlled, measures eventually being lifted, and everyone’s lives return to pre-Covid-19 state, the REIT’s results will eventually bounce back (no doubt its going to take some time, but I am confident of its results recovery.)

Another positive is that the REIT’s recent acquisition of 21 Harris Street in April, and the completion of Olderfleet, 477 Collins Street in mid-2020 (both properties are located in Australia) will contribute positively towards the REIT’s top- and bottom-line in time to come.

As such, I will remain invested in the REIT for now.

Download Your Copy of Suntec REIT’s Latest Q1 FY2020 Results Highlights:

You can download the press release and the REIT’s Q1 FY2020 result highlights below:

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

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