Suntec REIT (SGX:T82U) is a retail and office REIT where its properties are located in Singapore, Australia, and also in the United Kingdom.
In Singapore, the REIT owns Suntec City, a 66.3% interest in Suntec Singapore Convention & Exhibition Centre, a one-third interest in One Raffles Quay, Marina Bay Financial Centre Towers 1 & 2, and Marina Bay Link Mall; in Australia, it holds a 100% interest in 177 Pacific Highway, 21 Harris Street (Sydney), and 55 Currie Street (Adelaide), as well as a 50.0% interest in Southgate Complex, Olderfleet, 477 Collins Street (Melbourne); in the United Kingdom, it holds a 50.0% interest in Nova Properties, and a 100% interest in The Minster Building (both located in London.)
This morning (26 April 2023), the REIT have made available its business update for the first quarter of the financial year 2023 ended 31 March.
As it has switched to half-yearly reporting of its full financial statements, in the current quarter under review, it only provided a snippet of its financial figures, which you’ll find a review on, along with its portfolio occupancy and debt profile, as well as its distribution payout to unitholders this time round.
Let’s begin:
Key Financial Figures (Q1 FY2022 vs. Q1 FY2023)
The following table is some of Suntec REIT’s key financial figures for Q1 FY2023, compared against that reported in the same time period last year (i.e. Q1 FY2022):
| Q1 FY2022 | Q1 FY2023 | % Variance | |
| Gross Revenue (S$’mil) | $99.2m | $108.7m | +9.6% |
| Property Operating Expenses (S$’mil) | $24.9m | $32.4m | +30.1% |
| Net Property Income (S$’mil) | $74.3m | $76.3m | +2.7% |
| Distributable Income to Unitholders (S$’mil) | $62.9m | $44.5m | -29.3% |
My Observations: The REIT’s results for the first quarter of FY2023, compared against the same time period saw its gross revenue and property operating expenses going up by a single-digit percentage, which was pretty much expected, considering the lack of acquisitions made mainly due to high borrowing costs – improvements were contributed from higher revenue from its existing properties (in Suntec City Office, Suntec City Mall, and Suntec Convention), but offset by a weaker Australian Dollar and British Pounds against the Singapore Dollar.
Finally, the double-digit percentage decline in its distributable income to unitholders was due to higher financing cost, weaker Australian Dollar and British Pounds against the Singapore Dollar, higher maintenance fund contribution in 2023, along with a lower contribution from Joint Venture (due to higher bad debt provision on change in accounting policy at Nova Properties, along with lower contribution from Southgate Complex due to higher interest expense.)
Portfolio Occupancy Profile (Q4 FY2022 vs. Q1 FY2023)
Next, let us take a look at the REIT’s occupancy rates for its properties in the different geographical locations – where I will be comparing the stats reported for the current quarter under review (i.e. Q1 FY2023 ended 31 March 2023) against that reported in the previous quarter 3 months ago (i.e. Q4 FY2022 ended 31 December 2022) to find out if it continues to remain resilient:
| Q4 FY2022 | Q1 FY2023 | Difference (in Percentage Points – pp) | |
| Singapore Retail | 98.1% | 98.3% | +0.2pp |
| Singapore Office | 98.5% | 98.9% | +0.4pp |
| Australia Retail & Office | 97.6% | 97.3% | -0.3pp |
| United Kingdom Office | 98.3% | 100.0% | +1.7pp |
My Observations: Unlike its mixed financial performance (seen in the previous section), its portfolio occupancy profile were largely positive, with improvements seen in properties in Singapore (due to improvements in occupancy in Suntec City Office [up from 99.9% in Q4 FY2022 to 100.0% in Q1 FY2023], MBFC Towers 1 & 2 [up from 94.1% in Q4 FY2022 to 95.5% in Q1 FY2023], Suntec City Mall [from 98.3% in Q4 FY2022 to 98.5% in Q1 FY2023], and Marina Bay Link Mall [from 92.7% in Q4 FY2022 to 94.1% in Q1 FY2023]) and United Kingdom (with The Minster Building’s occupancy went up from 96.7% in Q4 FY2022 to being fully occupied in Q1 FY2023.)
The dip in the REIT’s Australia retail and office properties was due to a fall in occupancy rate in Southgate Complex (down from 92.3% in Q4 FY2022 to 90.1% in Q1 FY2023.)
One of the things I like about the REIT is that, its properties are more than 90.0% occupied, which is very resilient.
Debt Profile (Q4 FY2022 vs. Q1 FY2023)
Apart from the REIT’s financial figures, and its portfolio occupancy profile, another area I will focus on (whenever I review a REIT’s quarterly update) is its debt profile.
For those who have been following my past reviews on the REIT’s quarterly updates, you’re probably aware of concerns I have on this area – in that its aggregate leverage is among the highest in all of the Singapore-listed REITs, along with its interest coverage ratio being one of the lowest.
Particularly, with its interest coverage ratio falling to 2.4x in Q4 FY2022 ended 31 December 2022, its aggregate leverage limit will be reduced to 45.0% (from 50.0%, if a REIT is able to maintain its interest coverage ratio at 2.5x or above) – at its aggregate leverage level of 42.4% in Q4 FY2022, it is very close to the ceiling.
The big question is whether there are improvements made on this front 3 months on – in the table below, you’ll find a comparison of the REIT’s debt profile reported for the current quarter under review (i.e. Q1 FY2023 ended 31 March 2023) against that reported in the previous quarter (i.e. Q4 FY2022 ended 31 December 2022):
| Q4 FY2022 | Q1 FY2023 | |
| Aggregate Leverage (%) | 42.4% | 42.8% |
| Interest Coverage Ratio (times) | 2.4x | 2.2x |
| Average Term to Debt Maturity (years) | 2.9 years | 2.6 years |
| Average Cost of Debt (%) | 2.9% | 3.7% |
| % of Borrowings Hedged at Fixed Rates (%) | ~66% | ~72% |
My Observations: Personally, its debt profile continues to disappoint – especially with its average cost of borrowings spiking by 0.8 percentage points to 3.7%, and its interest coverage ratio further going down to a low of just 2.2x.
In terms of debt maturity, $646m of borrowings is due to mature in the 2nd half of FY2023 ahead, but S$180m will be refinanced in May 2023 – leaving about $466m for refinancing. In FY2024, S$900m of borrowings will be maturing, with another $662m of borrowings maturing in FY2025, $784m of borrowings maturing in FY2026, $900m of borrowings maturing in FY2027, and the remaining $380m of borrowings maturing only in FY2028 and beyond.
Finally, for every 10 basis point (bp) change in interest rates, its distribution per unit will be impacted by approximately 0.149 cents.
Distribution Payout to Unithlders (Q1 FY2022 vs. Q1 FY2023)
Suntec REIT is one of the REITs that pays out a distribution to its unitholders on a quarterly basis.
For Q1 FY2023, a payout of 1.737 cents/unit was declared – a 27.4% decline from the payout of 2.391 cents/unit declared in Q1 FY2022.
If you are a unitholder of the REIT, do take note of the following dates on its distribution payout:
Ex-Date: 04 May 2023
Record Date: 05 May 2023
Payout Date: 30 May 2023
CEO Mr Chong Kee Hiong’s Comments & Outlook (from the REIT’s Press Release)
“Looking forward, our operating performance is expected to continue to improve but interest rate and energy cost are likely to remain high which will impact our distribution for the year. To cushion the impact, we will continue with the distribution of the remaining capital top up for 2023 to provide some support to unitholders in these tough times. We are also actively looking at the potential divestment of our mature assets so as to unlock value and improve our balance sheet.”
Closing Thoughts
Apart from its portfolio occupancy profile, which continues to remain strong, as its properties have an occupancy rate of more than 90%, its debt profile continues to disappoint (in my opinion) – no doubt its percentage of borrowings hedged to fixed rates have increased to 72%, but even at this percentage, it is still on the low side.
Additionally, with quite a fair bit of borrowings due for refinancing from now till the year 2025 (where interest rates are likely to remain at high levels), its cost of borrowings is poised to go up further, and as a result, its distribution payout to unitholders taking a further hit.
With that, I have come to the end of my review of Suntec REIT’s business update for the first quarter of FY2023. Do note that all the opinions you’ve just read is purely for educational purposes only. They do not represent any buy or sell calls for the REIT’s units. You’re strongly advised 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.
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