Suntec REIT (SGX:T82U), a REIT in my long-term investment portfolio, published its annual report for the financial year 2020 ended 31 December 2020 last Wednesday (31 March 2021.)
Just like the other companies I have invested in, I have gone through the office and retail REIT’s latest annual report to learn about the latest updates, took notes of the most important points, and sharing them in this post (for the benefit of those who do not have the time to go through it), along with details about its upcoming annual general meeting (AGM), and my personal thoughts to share…
Impact of Covid-19:
- In 2020, the Covid-19 pandemic caused massive disruptions to the lives of both individuals as well as businesses.
- The REIT’s convention and retail businesses were most adversely impacted – for the former, S$40m was injected into Suntec Singapore in July 2020, and this increases Suntec REIT’s equity interest to 66.3% (from 60.8%.); for the latter, rental rebates were provided to affected tenants.
- However, the resilience of its office portfolio in Singapore and Australia, along with income contribution from the newly acquired 21 Harris Street in Sydney, as well as Olderfleet, 477 Collins Street in Melbourne helped to mitigate the impact on the REIT’s financial performance.
- Following the reopening of the Singapore economy, tenant sales have recovered to more than 85% of pre-Covid levels by the end of FY2020, with some trade categories recovering faster than the others.
Performance in FY2020:
- Distributable income from operations in FY2020 fell 11.6% to S$209.2m (FY2019: S$262.7m) due to rental assistance granted to retail tenants at Suntec City Mall, Marina Bay Link Mall, and Southgate Complex (located in Australia), the absence of income contribution from Suntec Convention, along with the absence of compensation from the Marina Bay Financial Centre Properties.
- In the first half of FY2020, 10.0% (or S$10.3m) of the distributable income was retained to achieve a balance between providing a reasonable return to its unitholders, building a cash reserve, and supporting their tenants. However, with signs of recovery in its retail businesses and the continued resilience of their office portfolio in Singapore and Australia, the entire S$10.3m was fully distributed to its unitholders in February 2021, together with the fourth quarter distribution.
- Portfolio Occupancy Profile:
- Singapore office portfolio had a committed occupancy of 96.6% as at 31 December 2020, well above the market occupancy of 93.2% for Grade A CBD offices
- Singapore retail portfolio had an overall occupancy of 90.2%
- For its Australia office properties, both 177 Pacific Highway and Southgate Complex Office were 100.0% occupied; Even though its other office properties did not receive full occupancy (with Olderfleet, 477 Collins Street at 97.2%, 55 Currie Street at 91.7%, and 21 Harris Street at 68.7%), the vacancies are protected by rent guarantees provided by the respective vendors
- Capital Management:
- Aggregate leverage at 44.3%, with the regulatory limit at 50.0%.
- The average financing cost for FY2020 was 2.53% per annum, with approximately 61.0% of the debt fixed or hedged, and a weighted debt maturity of 3.0 years.
First Foray into the United Kingdom:
- In December 2020, the REIT acquired a 50.0% interest in Nova Properties, which has a long Weighted Average Lease Expiry (WALE) of 10.6 years, along with a 2-year guarantee on its rental income, contributes approximately 10.4% to the total income of the property – this will provide rental protection to ride out the current pandemic.
- The net property income yield of 4.6% will provide a DPU accretion of 2.3% to its unitholders.
- Singapore office properties – revenue expected to remain stable, underpinned by strong rent reversions achieved in the previous quarters; rent reversion expected to remain positive in 2021 with occupancy remaining in the mid-90% range.
- Singapore retail market – overall mall occupancy expected to recover to more than 95% by end-2021 as the increase in the number of people returning to their offices and rollout of Singapore’s vaccination programme will drive the continued recovery of footfall in Suntec City Mall.
- Suntec Convention – recovery expected to be slow due to weak international travel and safe management measures for large-scale events; the REIT is exploring ways to diversify and develop new revenue streams while looking with authorities to ease safe management measures without compromising health and safety priorities.
- Australian Office Properties – expected to remain resilient, underpinned by strong occupancy, annual rent escalations, and long lease tenures with minimal lease expiries in 2021.
- United Kingdom Properties – revenue supported by full occupancy and a long Weighted Average Lease Expiry until 2027.
Notice of AGM
Due to the ongoing Covid-19 measures, the REIT’s upcoming AGM next Thursday, 15 March 2021, at 10.30am, will be held online.
Fellow unitholders can sign up to attend the online meeting here (please note that the deadline to do so will be on 13 April 2021 at 10.30am.)
I have signed up to attend the AGM as a unitholder of the REIT, and will be providing a summary of the meeting shortly after (for the benefit of those who aren’t able to attend.)
With the Singapore government gradually lifting more safe distancing measures, I am of the opinion that, in time to come, as more individuals receive their vaccinations, more people will return to their offices, and as such, boosting footfall and sales of the tenants in Suntec City Mall.
I share the view of the Chairperson that MICE (Meetings, Incentives, Conventions, and Exhibitions) events may take some time before it can once again resume (to pre-Covid levels) due to the safe distancing measures still in place, and also the fact that travelling is largely still not possible. Despite having said that, however, as the convention centre business only contributes a very small percentage (a huge bulk of its total income comes from its retail and office properties) towards the REIT’s total income, I am not too concerned.
- Annual Report for FY2020
- Notice of AGM and Appendix
- Announcement on the Participation in AGM
- Proxy Form
Disclaimer: At the time of writing, I am a unitholder of Suntec REIT.