Besides CapitaLand Mall Trust (you can check out a post I have written earlier about its latest set of results here), another REIT in my long-term investment portfolio, Suntec REIT (SGX:T82U) released its results for the third quarter, as well as for the first nine months of the financial year 2020 (ended 30 September) before trading hours today.

In this post, you will find the REIT’s latest set of financial results, debt and portfolio occupancy profile, distribution per unit, along with whether or not the REIT’s current quarter results is a better one compared to the previous quarter (i.e. Q2 FY2020 ended 30 June 2020) – where its results tumbled due to the period under review covering the two month circuit breaker period.

Let’s begin…

Financial Results (Q3 FY2019 vs. Q3 FY2020, and 9M FY2019 vs. 9M FY2020)

Q3 FY2019 vs. Q3 FY2020:

Q3 FY2019Q3 FY2020% Variance
Gross Revenue
(S$’mil)
$91.9m$79.6m-13.4%
Property Operating
Expenses (S$’mil)
$33.6m$32.3m-3.8%
Net Property
Income (S$’mil)
$58.4m$47.3m-18.9%
Distributable Income
to Unitholders
(S$’mil)
$59.7m$52.2m-12.6%

No surprises there that the latest set of financial results reported by the REIT was a weaker one on a quarter-on-quarter (q-o-q) basis – the decline in its gross revenue was due to rental assistance and lower occupancy, lower marcoms revenue and gross turnover rent for Suntec City Mall, as well as lower revenue from MICE (Meetings, Incentives, Conventions, and Exhibitions) events at Suntec Convention; the 12.6% q-o-q drop in its distributable income to unitholders was due to rental assistance provided to the tenants in Suntec City Mall, Marina Bay Link Mall, and Southgate Complex retail (in Australia), along with the absense of contribution from Suntec Convention (due to its temporary closure), and one-off compensation received at MBFC properties in Q3 FY2019.

Q2 FY2020 vs Q3 FY2020:

You can check out my previous post written when Suntec REIT released its Q2 FY2020 results back in July here.

With the third quarter being in Phase 2 of the safe transition, both its gross revenue and net property income saw a smaller magnitude of decline (on a q-o-q basis) compared to the second quarter – its gross revenue fell by 13.4% in the third quarter compared to a drop by 29.2% in the second quarter; its net property income declined by 18.9% in the third quarter compared to a 34.5% drop in the second quarter.

9M FY2019 vs. 9M FY2020:

9M FY20199M FY2020% Variance
Gross Revenue
(S$’mil)
$270.0m$229.0m-15.2%
Property Operating
Expenses (S$’mil)
$97.1m$90.8m-6.4%
Net Property
Income (S$’mil)
$172.9m$138.2m-20.1%
Distributable Income
to Unitholders
(S$’mil)
$190.2m$145.0m-23.8%

Again, it is expected that on a year-on-year (y-o-y) basis, its top- and bottom-line were both weaker, largely due to rental rebates which the REIT provided to its tenants.

My Thoughts: Personally, the latest set of results are within my expectations. Looking at its second quarter results and comparing its q-o-q drop with the third quarter, the magnitude of decline was much reduced (which is good to note.)

I am of the opinion that, with Singapore on the verge of moving into Phase 2, shopper traffic is going to increase (and this will help further improve tenant sales.) Along with MICE events being allowed to once again resume (with safe distancing measures in place), I am positive of its results recovering in the quarters ahead (albeit at a slow pace.)

Debt Profile (Q2 FY2020 vs. Q3 FY2020)

If you have been following my posts, you will probably be aware that I have some concerns about the REIT’s high gearing ratio, and its low interest coverage (in fact its interest coverage is one of the lowest among the Singapore-listed REITs), and that I will be monitoring both statistics very closely in the quarters ahead.

That said, as far as the REIT’s debt profile for the current quarter under review (i.e. Q3 FY2020) is concerned, has it improved or deteriorated when compared against the previous quarter (i.e. Q2 FY2020 ended 30 June)? Let us find out in the table below:

Q2 FY2020Q3 FY2020
Gearing Ratio
(%)
41.3%41.5%
Interest Coverage
Ratio (times)
2.7x2.6x
Average Term to
Debt Maturity (years)
3.2 years3.1 years
Average Cost of
Debt (%)
2.6%2.6%

My Thoughts: The only bright spot here is that the cost of debt have remained the same; all the other statistics (particularly its gearing ratio as well as its interest coverage ratio) have deteriorated slightly.

Particularly, the REIT’s gearing ratio as at 30 June 2020, at 41.5%, is inching closer to the regulatory limit of 50.0% – meaning to say that its ability to be able to make further acquisitions may be limited.

I will continue to keep a close watch on the REIT’s debt profile moving forward.

Portfolio Occupancy Profile (Q2 FY2020 vs. Q3 FY2020)

Similar to how I look at the REIT’s debt profile, I will be comparing its portfolio occupancy profile recorded for the current quarter under review (i.e. Q3 FY2020) against the previous quarter (i.e. Q2 FY2020) to find out if it has improved or deteriorated:

Q3 FY2019Q3 FY2020Difference
(in Percentage
Points)
Portfolio Occupancy
– Singapore Retail (%)
96.4%93.4%-3.0pp
Portfolio Occupancy
– Singapore Office (%)
98.6%98.1%-0.5pp
Portfolio Occupancy
– Australia Retail (%)
92.8%91.7%-1.1pp
Portfolio Occupancy
– Australia Office (%)
93.1%94.0%+0.9pp

My Thoughts: Looking at the table above, apart from its Australia office (which managed to grow by 0.9pp compared to three months ago), all the others weakened.

Despite of that, its occupancy rates have been maintained at above 90.0% – which in my opinion is still considered pretty resilient.

Distribution Per Unit (Q3 FY2019 vs. Q3 FY2020)

The REIT is one that still pays out its unitholders on a quarterly basis. With that, let us take a look at its distribution per unit for the current quarter under review (i.e. Q3 FY2020) compared against the same period last year (i.e. Q3 FY2019):

Q3 FY2019Q3 FY2020% Variance
Distribution Per
Unit (S$’cents)
2.365 cents1.848 cents-21.9%

In-line with a drop in distributable income to unitholders (which I have covered in the previous section where I discussed about its financial results), its distribution per unit fell by 21.9% to 1.848 cents/unit.

If you are a unitholder of the REIT, you may want to take note of the following dates:

Ex-date: 29 October 2020
Record date: 30 October 2020 at 17:00hrs
Payout date: 25 November 2020

In Conclusion

Not the best set of results reported by the REIT in my personal opinion. Particularly, I am concerned about its gearing ratio inching closer towards the 50.0% regulatory limit with every passing quarter.

That said, moving forward, I am positive that with the coming announcement of when Phase 3 will come into effect (which will result in an increase in shopper traffic and tenant sales, along with the eventual resumption of MICE events – though it will be on a smaller scale), along with the contribution from 9 Penang Road, and from its two Australian offices (477 Collins in Melbourne, and 21 Harris in Sydney), will contribute positively to its top- and bottom-line.

Additionally, the REIT’s proposed acquisition (an EGM will be held in December 2020 to seek unitholders’ approval) in a 50.0% interest in Nova North, Nova South, and The Nova Building in the United Kingdom (the REIT’s first foray into the country), which has a 100.0% committed occupancy with a long-weighted annual lease expiry of 11.1 years, and a DPU accretion of 3.4% will contribute positively towards the REIT’s overall performance as well.

With that, I have come to the end of my review of the REIT’s latest results. Everything that you have just read is purely for educational purposes only, and does not constitute any buy or sell calls for the REIT. Please do your own due diligence before you make any investment decisions.

Related Documents

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

 

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