Suntec REIT (SGX:T82U), with retail and office properties located in Singapore (Suntec City, One Raffles Quay, and MBFC Properties), Australia (177 Pacific Highway, 21 Harris Street, Southgate Complex, Olderfleet, 477 Collins Street, and 55 Currie Street), as well as in the United Kingdom (Nova Properties, and The Minster Building) worth a total of S$12.2bn at the time of writing, released its business updates for the first quarter of FY2022 ended 31 March 2022 early this morning (26 April 2022.)

While the REIT have shifted to half-yearly reporting of its full financial results, but it has provided a snippet of some of the core financial figures, along with maintaining its quarterly distribution payout to its unitholders (with the latter something that I like.)

In this post, you’ll find my review on the REIT’s most recent financial performance, portfolio occupancy and debt profile, and also its latest distribution payout to its unitholders:

Financial Performance (Q1 FY2021 vs. Q1 FY2022)

The following table is a comparison of REIT’s financial performance on a quarter-on-quarter (q-o-q) basis:

Q1 FY2021Q1 FY2022% Variance
Gross Revenue
(S$’mil)
$79.7m$99.2m+13.9%
Property Operating
Expenses (S$’mil)
$26.5m$24.9m-9.8%
Net Property
Income (S$’mil)
$53.1m$74.3m+24.9%
Distributable Income
to Unitholders
(S$’mil)
$60.1m$62.9m+8.3%

Overall, the latest quarter’s results is another decent one for the retail and office REIT – where the 13.9% and 24.9% growth in its gross revenue and net property income respectively can be attributed to to the newly acquired The Minster Building, higher contribution from Suntec City Mall, Suntec Convention (particularly due to higher revenue from MICE – Meetings, Incentives, Conventions, and Exhibitions, along with lower fixed costs), and 21 Harris Street.

Also, the 8.3% increase in its distributable income to unitholders was contributed by improvements in its gross revenue and net property income, and also a capital distribution of S$5.8m (amount which was put on hold due to the pandemic.)

Portfolio Occupancy Profile (Q4 FY2021 vs. Q1 FY2022)

Next, let us take a look at the REIT’s portfolio occupancy profile – where I have compared the stats reported for the current quarter under review (i.e. Q1 FY2022 ended 31 March 2022) against that reported in the previous quarter 3 months ago (i.e. Q4 FY2021 ended 31 December 2021) to find out whether they have continued to remain resilient:

Q4 FY2021Q1 FY2022Difference (in
Percentage Points – pp)
Singapore Retail94.6%95.7%+1.1pp
Singapore Office97.5%97.8%+0.3pp
Australia
(Retail & Office)
N.A.94.3%
United Kingdom
Office
98.3%98.3%

My Observations: Overall, the REIT’s occupancy rates continue to remain very strong – where they all remain at above 90+% (do note that for its Australia portfolio, in the previous quarter, the REIT reported its occupancy profile for its office and retail separately, with the former at 94.2%, and the latter at 85.6%, but in the current quarter under review, they combined all under ‘Australia Portfolio’, hence the ‘N.A.’ remark under Australia (Retail & Office) for Q4 FY2021.)

Drilling down into the portfolio occupancy rates of individual properties, its Singapore office portfolio saw One Raffles Quay recording a slight decline in its occupancy (down from 98.5% in Q4 FY2021 to 95.8% in Q1 FY2022), and its Singapore retail saw Marina Bay Link Mall recording a 5.6pp decline in its occupancy (from 92.2% in Q4 FY2021 to 86.6% in Q1 FY2022). All other properties either recorded improvements or remained the same as last quarter.

Rental reversions for its Singapore office properties was at +1.9% for Q1 FY2022. For its Singapore retail properties, no doubt for Q1 FY2022, the rental reversion was at -0.9%, but it was still a huge improvement compared to a negative rental reversion of -13.5% for Q4 FY2021 – which is encouraging to note as a unitholder.

Debt Profile (Q4 FY2021 vs. Q1 FY2022)

Similar to how I have studied the REIT’s portfolio occupancy profile in the previous section, in this section, you will find a comparison of its debt profile reported for the current quarter under review against that reported in the previous quarter 3 months ago:

Q4 FY2021Q1 FY2022
Aggregate Leverage
(%)
43.7%43.3%
Interest Coverage
Ratio (times)
2.6x2.6x
Average Term to
Debt Maturity (years)
2.9 years2.7 years
Average Cost of
Debt (%)
2.4%2.3%

My Observations: No doubt its aggregate leverage was still dangerously high (in my opinion) at 43.3%, but at least over the past couple of quarters I have seen some gradual improvements (albeit slightly.) I also note that all the debt that’s due in FY2022 has been refinanced (and as such, there are no more borrowings due for refinancing in the remaining quarters of the financial year.)

The REIT also has about 51.0% of its borrowings hedged on fixed rate as at 31 March 2022.

Moving forward, as the REIT’s aggregate leverage and interest coverage ratio was among the highest and lowest respectively in all the Singapore-listed REITs, I will continue to keep a close watch on its debt profile in the coming quarters ahead.

Distribution Payout to Unitholders

For the current quarter under review, the REIT have declared a distribution payout of 2.391 cents/unit, a 16.9% increased compared to 2.045 cents/unit paid out in the same time period last year (i.e. Q1 FY2021.)

If you are a unit holder of the REIT, do take note of the following dates regarding its distribution payout:

Ex-Date: 05 May 2022
Record Date: 06 May 2022
Payout Date: 30 May 2022

Closing Thoughts

Pretty resilient set of results reported by the REIT in my opinion – with its key financial statistics (i.e. its gross revenue, net property income, and distributable income to unitholders) all recording double-digit percentage improvements compared to the same time period last year. Also, its portfolio occupancy for all its properties have continued to remain very strong (where the overall portfolio occupancy rate for its properties in the various geographical locations – in Singapore, Australia, as well as in the United Kingdom, are at above 90.0%.)

The only thing I continue to have concerns about is its debt profile – with its aggregate leverage still dangerously close to the regulatory limit of 50.0% (assuming that its interest coverage rate continues to remain at above 2.5x; otherwise, its regulatory limit will be at 45.0%.) Another thing to note is that, as the interest coverage ratio is just slightly more than 2.5x (at 2.6x as of 31 March 2022), it could very easily fall below 2.5x and its regulatory limit will be down to 45.0% – and when that happens, the REIT’s current aggregate leverage will be extremely close to the regulatory limit. This is something I’ll continue to keep a close watch on in the coming quarters ahead.

Apart from that, the outlook in the coming quarters ahead certainly looks bright for the REIT, particularly with the further easing of safe management measures effective today (26 April 2022), where safe distancing is no longer required, no limits on group gathering sizes, and at the same time, all workers are allowed to return to their workplaces – the increase in the number of workers returning to their workplace will bode well for the REIT’s 2 retail malls located in the CBD (i.e. Suntec City, as well as Marina Bay Link Mall.) Also, in time to come, as MICE events gradually resume, contributions from Suntec Convention can also help to further improve the REIT’s overall revenue.

With that, I have come to the end of my review of Suntec REIT’s latest first quarter business update. I do hope that you’ve found the above summary useful and as always, do take note that everything you’ve just read above (particularly my thoughts and concerns) are purely my own which I’m sharing for educational purposes only. They certainly do not represent any buy or sell calls for the REIT’s units. You’re strongly encouraged to do your own due diligence before you make any investment decisions.

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