Early this morning, retail and office REIT Suntec REIT (SGX:T82U) released its results for the second quarter ended 30 June 2020.

One thing to note before I proceed to take a look at its “report card” – both Suntec City retail mall and Suntec Convention Centre are directly impacted by the two-month circuit breaker period implemented by the Singapore government (between 07 April and 01 June 2020) to contain the spread of Covid-19 in the country. At the time of writing while retail shops have once again resumed operations, and dining-in allowed in F&B outlets, Suntec Convention still remain close (till 02 August 2020.) With that, I am of the expectation that this quarter’s results will be a weaker one on a q-o-q basis (as the quarter under review encompasses the entire circuit breaker period.)

Let us now proceed to take a look at the REIT’s latest set of financial results, portfolio occupancy and debt profile, distribution payouts to unitholders, along with my personal analysis…

Key Financial Results

1H FY2019 vs. 1H FY2020:

1H FY20191H FY2020% Variance
Gross Revenue
(S$’mil)
$178.1m$149.4m-16.1%
Property Operating
Expenses (S$’mil)
$63.5m$58.5m-7.8%
Net Property
Income (S$’mil)
$114.6m$90.9m-20.6%
Distributable Income
to Unitholders (S$’mil)
$130.5m$92.8m-28.9%

As expected, the latest set of financial results is a weaker one on a year-on-year (y-o-y) basis for the REIT – The 16.1% drop in its gross revenue was due to lower revenue from Suntec City and Suntec Singapore by S$14.9m and S$22.7m respectively, along with lower revenue from 177 Pacific Highway. However, this was offset by contributions from 21 Harris Street and 55 Currie Street which was acquired on 06 April 2020 and 10 September 2020 respectively.

The REIT’s net property income saw a 20.6% y-o-y decline as a result of rent assistance granted to Suntec City retail tenants and provisions made for rent assistance to eligible office tenants. Again, the drop was offset by contributions from 21 Harris Street and 55 Currie Street.

Finally, the REIT’s distributable income to unitholders fell by 28.9% y-o-y, which can be attributed to the REIT retaining 10% of distributable income in view of the Covid-19 pandemic.

Q2 FY2019 vs. Q2 FY2020:

The following table is the REIT’s quarter-on-quarter (q-o-q) performance which I have compiled:

Q2 FY2019Q2 FY2020% Variance
Gross Revenue
(S$’mil)
$88.4m$62.5m-29.2%
Property Operating
Expenses (S$’mil)
$32.0m$25.6m-19.9%
Net Property
Income (S$’mil)
$56.4m$36.9m-34.5%
Distributable Income
to Unitholders (S$’mil)
$65.2m$43.2m-33.7%

As expected, the REIT’s most recent set of q-o-q results was a weaker one.

My Thoughts: No surprises here in terms of the REIT’s most recent set of financial results. However, with shops in Suntec City retail mall reopening once again, and F&B outlets allowing dining-in, shoppers are gradually returning to the mall. Barring unforeseen circumstances, I personally feel the REIT’s results for the remaining two quarters of the financial year 2020 will be a better one (though it will still be weaker compared to a year ago, as normalcy has not yet return, and unlikely to return this year.)

Portfolio Occupancy Profile (Q1 FY2020 vs. Q2 FY2020)

Compared to the previous quarter (i.e. Q1 FY2020 ended 31 March 2020), has the REIT’s portfolio occupancy improved or deteriorated?

Let us find out in the table below:

Q1 FY2020Q2 FY2020
Singapore Retail98.4%96.4%
Singapore Office98.8%98.6%
Australia Retail92.8%92.8%
Australia Office97.7%93.1%

My Thoughts: Other than the REIT’s Australia retail (i.e. Southgate Complex in Melbourne), the others saw a slight decline. However, I am not too concerned by it as the occupancy rate are still above 90.0% – which in my opinion is a healthy one.

Debt Profile (Q1 FY2020 vs. Q2 FY2020)

I understand that some investors are concerned about the REIT’s gearing ratio (which is on the high side compared to many S-REITs), and interest coverage ratio (which is relatively low compared to many S-REITs.)

Compared to the previous quarter (ended 31 March 2020), how is the REIT’s debt profile like for the quarter ended 30 June 2020? Let us find out in the table below:

Q1 FY2020Q2 FY2020
Gearing Ratio
(%)
37.7%41.3%
Interest Coverage
Ratio (times)
2.7x2.7x
Average Term to
Debt Maturity (%)
3.4 years3.2 years
Average Cost of
Debt (%)
2.9%2.6%

My Thoughts: While the average cost of debt have been slightly reduced compared to last quarter, and that its interest coverage ratios have remained consistent, its gearing ratio have gone up quite a bit over the same time period – definitely something I will keep a close watch on in the quarters ahead.

Distribution Per Unit (Q2 FY2019 vs. Q2 FY2020)

Compared to Q2 FY2019, Suntec REIT’s distribution per unit fell by 35.1% on a q-o-q basis to 1.533 cents/unit (Q2 FY2019: 2.361 cents/unit.)

If you were to refer back to the section where I looked at the REIT’s financial results on a q-o-q basis, the percentage drop in the its distribution per unit is very much in-line with the drop in its top- and bottom-line performance.

The record date for the distribution payout of 1.533 cents/unit will be on 03 August 2020, with payout date on/about 27 August 2020.

My Thoughts: As I expected the REIT to report a weaker set of Q2 results, the drop in its distribution payout to unitholders this time round was very much within my expectations.

Conclusion

The only thing I am not too comfortable about is the REIT’s increasing gearing ratio – which in my opinion is on the high side. I continue to remain invested in the REIT, while last the same time, monitoring its gearing ratio over the next 2 quarters ahead.

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

 

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