This morning (15 April 2021), Suntec REIT (SGX:T82U) with retail and office properties in Singapore, Australia, and in the United Kingdom, held its annual general meeting (AGM) for the financial year ended 31 December 2020 (i.e. FY2020) online (due to the current safe distancing measures in place.)
In this half an hour meeting, the CEO of the REIT, Mr Chong Kee Hiong, gave a presentation on the highlights of FY2020 (in terms of its financial and portfolio performance, capital management, and outlook for the year 2021 ahead), followed by the 4 resolutions being put to a vote by the Chairperson Ms Chew Gek Khim.
For the benefit of those who were unable to attend the meeting, in this post, you will find a summary of the CEO’s presentation, along with results of the resolutions that were put to vote, along with my personal thoughts as a unitholder of the REIT:
FY2020 Financial Performance:
- Gross revenue and net property income declined by 14.0% (to S$315.4m) and 15.4% (to S$199.9m) respectively compared to last year mainly due to rental rebates to help its tenants who were affected by the Covid-19 pandemic, along with a signification reduction in MICE (Meetings, Incentives, Conventions, and Exhibitions) revenue from Suntec Convention due to the pandemic. However, this was offset by revenue contributions from the REIT’s new acquisitions in 55 Currie Street, 477 Collins Street, and 21 Harris Street.
- Income contribution from the REIT’s Joint Ventures (JVs) also saw a 4.3% decline compared to last year (to S$94.3m) due to rental assistance provided to tenants in Marina Bay Link Mall and Southgate Complex Retail (in Australia), offset by a stronger performance from Southgate Complex Office (in Australia), as well as from One Raffles Quay.
- For prudence, the REIT withheld 10% of the distributable income in the first and second quarters of FY2020. However, with more clarity in the second half of the year, the REIT have released all the withheld distributions in the fourth quarter. In the whole of FY2020, distributable income to unitholders was S$209.2m (FY2019: S$236.7m), with distribution per unit at 7.402 cents/unit (FY2019: 9.507 cents/unit.)
Updates on Acquisitions and Developments:
- While the REIT remains prudent in the midst of the pandemic, but Mr Chong added that the REIT has continued to seek out opportunities for long-term growth, as well as returns to its unitholders.
- He further elaborated that in the year 2020, the REIT has acquired properties in Australia (21 Harris in Sydney in April), as well as in the United Kingdom (Nova Properties in London in December), increased its equity stakes in Suntec Singapore by another 6% (to 66.3% in July). He also updated that developments in 477 Collins in Melbourne was completed in July.
- In terms of revenue contribution, a lion’s share of the REIT’s income comes from its office properties (at 85%.) As for its income contribution by geographical locations, 75% comes from Singapore, while the remaining 25% comes from Australia (there is no revenue contribution coming from the United Kingdom properties as the acquisition was only completed on 18 December 2020.)
- Singapore Office Properties:
- Overall occupancy rate of 96.7% is higher than the overall CBD occupancy of 93.2%
- Suntec City Office: 95.6% committed occupancy, with 27.9% of the leases due to expire in 2021; asset enhancement works for its office towers is expected to complete by 2022
- One Raffles Quay: 97.3% committed occupancy, with 9.9% of the leases due to expire in 2021
- MBFC Properties: 97.8% committed occupancy, with 19.9% of the leases due to expire in 2021
- 9 Penang Road: Office component 100% leased to UBS on a long tenure, and 70% of the retail units leased to pre-dominantly F&B tenants
- Singapore Retail Properties:
- Overall occupancy rate of 90.2% is lower than the secondary market occupancy rate of 92.6%
- While footfall for the entire 2020 was only 50% of what was recorded in 2019, but in terms of tenant sales for the whole of 2020, it was down by just 28% compared to that recorded in 2019
- That said, Mr Chong also added that in the fourth quarter of 2020, footfall has returned to 60% of what was recorded in 2019, with tenant sales just 12% lesser compared to last year
- Suntec City Mall: 90.1% committed occupancy, with a rental reversion of -1.3% recorded for new and renewed leases in FY2020
- Australia and UK Properties:
- Committed occupancy for the REIT’s Australian offices (at 94.0%) was higher than the Nationwide CBD Q4 2020 office occupancy of 86.7%
- Committed occupancy for its UK properties was at 100.0%, above the Central London Q4 2020 office occupancy of 93.2%
- 177 Pacific Highway, Sydney: 100.0% committed occupancy, with 3.1% of the leases due to expire in 2021
- 21 Harris Street, Sydney: 68.7% committed occupancy, with rent guarantee on vacant spaces till April 2023
- Southgate Complex, Melbourne: 98.9% committed occupancy, with 7.5% of the leases due to expire in 2021
- Olderfleet, 477 Collins Street, Melbourne: 97.2% committed occupancy, with rent guarantee on vacant spaces till July 2025
- 55 Currie Street, Adelaide: 91.7% committed occupancy, with rent guarantee on vacant spaces till November 2021; 14.7% of the leases are due to expire in 2021
- Nova Properties, London, UK: 100.0% occupied, with a 2-year guarantee on retail income till December 2022
- Aggregate leverage ratio as at 31 December 2020 was 44.3%, to which Mr Chong admitted was a bit on the high side, but he added that it was within the REIT’s target (of between 40% and 45%.) However, he assured unitholders that the REIT has plans to bring down this statistic in time to come.
- On debt due in FY2021, Mr Chong said that there is more than sufficient capital for refinancing.
- Singapore Office Portfolio:
- Return of workforce expected to increase in Q2 2021 from the current levels of 30% in Suntec City Office and 45% in Marina Bay Offices
- While hybrid working arrangement will continue, but physical offices will remain relevant as companies see the need to build corporate culture and faster employee collaboration and socialisation, and this cannot be done virtually
- Revenue from the office properties are expected to remain stable due to strong rental reversions recorded in the past quarters
- While rental reversion for new and expiring leases in FY2020 are expected to continue to remain positive, but it will not be as strong compared to pre-Covid
- Suntec City Mall:
- Mall traffic for FY2021 is expected to recover to about 80% of FY2019 level
- In terms of rental reversions for new or renewed leases, it is expected to remain weak due to a reduction in fixed rent due to short-term rent restructure, but it will be mitigated by an increase in the GTO (Gross Turnover) rent
- Suntec Convention:
- Recovery will be slow and uncertain due to weak international travel, along with safe management measures in place for events
- Its FY2021 revenue will be supported by long-term licenses and small-scale events – particularly, Mr Chong shared that 4 churches have obtained approval for services for up to 250 members every weekend
- Australia Portfolio:
- 90% of the REIT’s Australia properties comes from its office properties, and they continue to remain resilient, with a long WALE with minimal lease expiry in 2021, along with annual rent escalations built-in
- United Kingdom Portfolio:
- Mr Chong updated that retail and F&B outlets have reopened from 12 April 2021
- Risks on retail income is supported by a 2-year guarantee
- Office revenue will remain resilient underpinned by full occupancy, long WALE with no lease expiry until 2027
Questions by Unitholders:
- On a question regarding the new Code of Conduct for Leasing of Retail Premises in Singapore, Mr Chong responded that Suntec REIT supports the new Code of Conduct on tenancy agreements, as it will help to build trust, reduce ambiguity, and provide greater clarity on the ‘rules of engagement’ during lease negotiations. He further added that it is not expected to have a significant impact on the REIT’s retail revenue, as more than half of its retail tenants in Singapore have a variable gross turnover component in their rent structure.
- Another question which Mr Chong addressed pertained to the REIT’s expansion plans for 2021/22, to which his response was Suntec REIT will continue to remain Singapore-centric. He added that the Manager expects 30% to 40% of its Assets Under Management (AUM) to be overseas in the next few years (currently, 24% of the REIT’s AUM are overseas.)
Results of the Resolutions Put to Vote during the AGM
- Resolution #1, which is to receive and adopt the Report of the Trustee, the Statement by the Manager, and the Audited Financial Statements of Suntec REIT for the year ended 31 December 2020 was passed with 98.56% (or 1,757,031,207) of the votes for, and 1.44% (or 25,593, 001) of the votes against.
- Resolution #2, which is to re-appoint KPMG LLP as Auditors of Suntec REIT and authorise the Manager to fix the Auditors’ renumeration was passed with 99.79% (or 1,779,727,920) of the votes for, and 0.21% (or 3,746,388) of the votes against.
- Resolution #3, which is to authorise the Manager to issue units and to make or grant convertible instruments was passed with 89.89% (or 1,603,172,734) of the votes for, and 10.11% (or 180,338,574) of the votes against.
- Resolution #4, which is to approve the General Mandate for unit buy-back was passed with 99.91% (or 1,781,701,520) of the votes for, and 0.09% (or 1,530,488) of the votes against.
All in all, I felt it was a detailed update by the CEO on the REIT’s financial and portfolio performance, as well as its capital management. Its also good to hear from the CEO that they will be looking for ways to bring down its aggregate leverage (which I feel is on the high side), and it will be good in my personal opinion if this statistic can be improved in time to come.
I also note the positivity by the CEO with regard to the performances of the retail and office properties in the year ahead, even though it may be some time before its convention centre revenue can go back to pre-Covid levels.
With that, I have come to the end of my summary of Suntec REIT’s AGM. Hope you find the contents above useful.
Disclaimer: At the time of writing, I am a unitholder of Suntec REIT.