Listed on 9 December 2004 on the Main Board of the Singapore Exchange Securities Trading Limited, Suntec REIT (SGX:T82U) owns income-producing real estate primarily used for office and/or retail purposes. As at 31 December 2022, the REIT has assets under management of over S$12 billion with properties in the following countries:

• Singapore: Office and retail properties in Suntec City, 66.3% interest in Suntec Singapore Convention & Exhibition Centre, one-third interest in One Raffles Quay, one-third interest in Marina Bay Financial Centre Towers 1 & 2, and Marina Bay Link Mall (collectively they are known as MBFC Properties);
• Australia: 177 Pacific Highway and 21 Harris Street in Sydney, 50.0% interest in Southgate Complex, and 50.0% interest in Olderfleet, 477 Collins Street in Melbourne, and 55 Currie Street in Adelaide;
• United Kingdom: 50.0% interest in Nova Properties, and The Minster Building in London.

This morning (29 March 2023), the retail and office REIT made available its annual report following the conclusion of the financial year on 31 December 2022 (you can read my review of the REIT’s fourth quarter and full-year results here.)

In today’s post (which I’ve compiled for the benefit of those who do not have the time to go through the entire report), you’ll find my summary of Suntec REIT’s annual report, and details about its upcoming annual general meeting (AGM):

Summary of Suntec REIT’s Annual Report

Financial Performance Impacted by Higher Interest Rates:

• Gross revenue increased 19.3% to S$427.3m (FY2021: S$358.1m), mainly due to higher contribution from Suntec City Office and Suntec City Mall due to higher occupancy and rent, higher revenue from Suntec Convention, 21 Harris Street and Olderfleet, 477 Collins Street, as well as the full year contribution from The Minster Building, offset by lower revenue from 177 Pacific Highway due to lower occupancy and the absence of received in 2021, along with weaker Australian dollar partially offset the higher contribution.
• Net property income rose 24.0% to S$315.8m (FY2021: S$254.6m), attributable to higher revenue from Suntec City, Suntec Singapore, 21 Harris Street and Olderfleet, 477 Collins Street, as well as The Minster Building, partially offset by lower contribution from 177 Pacific Highway and 55 Currie Street.
• Income contributions from joint ventures went up by 3.3% to S$118.8m (FY2021: S$115.0m), mainly due to the absence of performance fee paid to a fund manager for 9 Penang Road in FY2021, higher contribution from One Raffles Quay (due to higher occupancy and rent), as well as lower provision for bad debts at Nova Properties, offset by higher interest expense at One Raffles Quay and Southgate Complex, along with higher property expenses at MBFC Properties.
• Distributable income from operations fell 5.9% to S$232.5m (FY2021: S$247.2m) due to higher financing costs arising from higher interest rates, and a higher proportion of asset management units received in cash.
• Finally, total distributable income for FY2022 was 3.4% higher at S$255.5m (FY2021: S$247.2m), with distribution per unit up by 2.5% to 8.884 cents/unit (FY2021: 8.666 cents/unit) – this was mainly due to the resumption of capital distribution amounting to S$23.0m which was previously put on hold during the pandemic.

Strong Operating Performance Across Portfolio:

• Singapore Office Portfolio: Recorded 18 consecutive quarters of positive rent reversions; Committed occupancy of 98.5% was well above the market occupancy of 94.7% for Core CBD offices.
• Australia Portfolio: All of the REIT’s Australian properties registered strong rent reversions for the year as tenants continued to be attracted by its good quality assets in excellent locations. Committed occupancies remained healthy at 97.6%, higher than the nationwide CBD office occupancy of 85.8%.
• United Kingdom: Committed occupancies at Nova Properties and The Minster Building, at 100.0% and 96.7% respectively, were higher than the Central London office occupancy of 91.6%.
• Singapore Retail: Suntec City Mall achieved 3 consecutive quarters of positive rent reversion, with committed occupancy at 98.3%. Mall traffic recovered 84% in 2022 compared to 2019, with monthly tenant sales surpassing pre-pandemic levels since April 2022 when safe management measures were significantly eased in Singapore.
• Suntec Convention: Returned to profitability in 2022 as recovery of Meetings, Incentives, Conventions, and Exhibitions (MICE) industry in Singapore gathered pace following the easing of border restrictions and safe management measures.
• Portfolio Level: Top 10 tenants for its office portfolio contributes 21.5% towards the REIT’s total monthly office gross rental income, while top 10 tenants for its retail portfolio contributes 18.8% towards the REIT’s total retail gross rental income.

Well Diversified Portfolio with Strong Core in Singapore:

• 74% of its total assets under management (AUM) of S$12.3 billion is in Singapore, with 16% in Australia, and 10% in the United Kingdom.

Disciplined Approach to Capital Management:

• As at 31 December 2022, the aggregate leverage ratio improved to 42.4% (FY2021: 43.7%), and adjusted interest cover at 2.4 times (FY2021: 2.6 times) – according to the REIT management, there is an adequate headroom to the limit of 45.0%.
• Average financing cost for FY2022 was 2.94% per annum, with approximately 66.0% of debt fixed or hedged.
• In navigating the trend of rising interest rates, the REIT’s management will continue to safeguard and strengthen the balance sheet through active capital management and potential divestment of some of their mature assets.

Stability Continued to be a Bedrock of the REIT’s Business:

• Suntec REIT continued to make progress on the Environmental, Social, and Governance (ESG) front, and the REIT have retained GRESB’s (one of the leading ESG benchmarks for real estate and infrastructure investments globally) highest accolade of Global Sector Leader for the ‘Office-Listed’ category, and GRESB highest 5-star rating in 2022.
• Sustainability continues to be a core aspect of the REIT’s long-term business strategy, where they have refinanced borrowings amounting to S$900m with sustainability-linked loans, bringing its green loans to 27% of its total borrowings.
• An environmental risk assessment was also conducted, with results integrated into the REIT’s enterprise risk management framework, allowing them to better identify and manage climate-related risks and opportunities, and attain Net-Zero Carbon status for all its assets by 2050.

Navigating Challenging Business Environment:

• Singapore Office Portfolio: Current economic outlook of caution likely to dampen demand for office spaces, with positive rent reversion for its portfolio expected to continue at a moderated rate, with revenue strengthening on the back of past quarters of positive rent reversion.
• Suntec City Mall: Revenue performance expected to improve, underpinned by higher occupancy and rent. Rebound of MICE events and return of tourists will also help boost tenant sales. However, growth of tenant sales is expected to down in 2023.
• Suntec Convention: Recovery will be driven by strong pipeline of international MICE events, and return of larger-scale consumer and corporate events. Easing of China’s travel restrictions expected to bring positive impact from second half of 2023. However, full recovery of the convention business is expected only in 2024.
• Australian Office Portfolio: Expected to remain resilient, underpinned by strong occupancy, annual rent escalations, and long lease tenure. While rent reversion is expected to be positive, revenue will be impacted by leasing downtime and incentives. In view of the economic uncertainty and market volatility, the feasibility of the potential redevelopment of the retail podium and construction of a new office tower at Southgate Complex is being re-evaluated.
• United Kingdom Office Portfolio: Revenue expected to remain resilient, underpinned by high occupancy and long weighted average lease expiry with minimal lease expiry until 2028.
• Distributions to Unitholders in Near-Term: Expected to be impacted significantly as a result of rising interest rates, weaker Australian dollar and Pound Sterling, along with higher energy costs.

Details of Suntec REIT’s Upcoming Annual General Meeting

When? Thursday, 20 April 2023
Time? 2.30pm
Where? Level 4, Hall 406, Suntec Singapore Convention & Exhibition Centre – 1 Raffles Boulevard, Suntec City, Singapore 039593

The meeting will be held in-person, with no option for unitholders to participate virtually.

If your unitholding is held in a CDP account, or through a CPF or SRS account, there’s no need for you to pre-register – your unitholding will be verified on the spot. However, if they are held in a custodian account, then you need to submit a request through your brokerage to appoint you as a proxy to attending the meeting.

As a unitholder, I will be attending the meeting, and seek responses from the management on the following in-person:

1. It was mentioned that the REIT is looking at the divestment of some mature assets to strengthen balance sheet, may I know the assets that the management is looking at divesting. Also, is there a projection on the number of assets that the management is looking at divesting?
2. On the same subject of divestment, given the current economic situation, will valuations of the properties be impacted, resulting in eventual divestment at a value that is lower compared to if the REIT were to wait for the economic situation to improve before doing so.
3. The REIT’s aggregate leverage, at 42.4% as at 31 December 2022, is uncomfortably close to the regulatory limit of 45.0% – may I know what did the management use to evaluate the health of the REIT’s aggregate leverage and deem the headroom as being ‘adequate’, because I’m sure many unitholders share the same opinion with me that it is very close to the regulatory limit at the moment. Also, may I know what is the target aggregate leverage the management is looking at maintaining?
4. Finally, on the topic of distributions, I understand from the annual report that a combination of factors including rising interest rates, weakening foreign currencies against the Singapore Dollar, and higher energy cost is expected to weaken distribution significantly in the near-term – that said, does the management have a projection on how much distribution will be lower compared to FY2022?

Related Documents

• Annual Report
• Request Form for Physical Copy of Annual Report
• Notice of AGM
• Announcement on Participation in AGM
• AGM Proxy Form

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

Catch Me "Live" at the REITs Symposium 2024 - the Largest REIT Event in Singapore!

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Many thanks for your support and advance, and I hope to see you at the event! :)

 

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