Listed on the Singapore Exchange since December 2004, Suntec REIT (SGX:T82U) invests in income producing real estate assets used for retail and office purposes, with its properties located in Singapore, Australia, as well as in the United Kingdom.

At the time of writing, its portfolio comprises of the following properties:

Singapore:

  • Suntec City (Singapore’s largest integrated commercial development, including one of Singapore’s largest shopping mall)
  • 66.3% interest in Suntec Singapore Convention & Exhibition Centre
  • One-third interest in One Raffles Quay, Marina Bay Financial Centre Towers 1 and 2, and Marina Bay Link Mall

Australia:

  • 100.0% interest in 177 Pacific Highway, Sydney
  • 100.0% interest in 21 Harris Street, Pyrmont, Sydney
  • 50.0% interest in Southgate Complex, Melbourne
  • 50.0% interest in Olderfleet 477 Collins Street, Melbourne
  • 100.0% interest in 55 Currie Street, Adelaide

United Kingdom:

  • 50.0% interest in Nova Properties
  • 100.0% interest in The Minster Building

Last Friday (20 October) evening, Suntec REIT have made available its business update for the third quarter ended 30 September 2023 (i.e., Q3 FY2023), and in this post, you will find my review of its key financial figures, portfolio occupancy and debt profile, and also its distribution payout to unitholders.

Let’s begin:

Key Financial Figures (Q3 FY2022 vs. Q3 FY2023, and 9M FY2022 vs. 9M FY2023)

As the REIT have switched to half-yearly reporting of its full financial results, it only published some key financial figures for the third quarter, which we will be looking at in this section.

You will find a comparison of the figures reported for the 3rd quarter (i.e., Q3 FY2022 vs. Q3 FY2023), and then for the first 9 months of the year (i.e., 9M FY2022 vs. 9M FY2023):

Q3 FY2022 vs. Q3 FY2023:

Q3 FY2022Q3 FY2023% Variance
Gross Revenue
(S$’mil)
$107.3m$123.4m+15.0%
Property Operating
Expenses (S$’mil)
$30.2m$38.8m+28.5%
Net Property
Income (S$’mil)
$77.1m$84.6m+9.7%
Distributable Income
to Unitholders (S$’mil)
$60.0m$52.0m-13.3%

My Observations: As expected, it was a mixed set of results reported by the REIT.

Gross revenue and net property income went up by 15.0% and 9.7% respectively due to higher contribution from Suntec City Office, Suntec City Mall, and Suntec Convention, and from The Minster Building (London). However, this was offset by higher maintenance fund contribution and commencement of sinking fund contribution in 2023, and lower contribution from the Australia portfolio.

On the other hand, its distributable income to unitholders fell by 13.3% due to higher financing cost, weaker Australian Dollar against the Singapore Dollar, along with a higher maintenance fund contribution in 2023, partially offset by higher net property income on better operating performance, and higher dividend contribution from Suntec Convention.

9M FY2022 vs. 9M FY2023:

The following table is Suntec REIT’s financial performance for the first 9 months of FY2022 and FY2023 which I’ve computed (as it did not provide this in its business update):

9M FY20229M FY2023% Variance
Gross Revenue
(S$’mil)
$310.8m$347.7m+11.9%
Property Operating
Expenses (S$’mil)
$80.8m$109.8m+35.8%
Net Property
Income (S$’mil)
$230.0m$237.9m+3.4%
Distributable Income
to Unitholders (S$’mil)
$198.1m$152.5m-23.0%

My Observations: Just like its results for the 3rd quarter above, the retail and office REIT’s financial performance for the first 9 months of the year was also a mixed one – with its gross revenue recording a 11.9% improvement, while its distributable income to unitholders fell by 23.0%.

Portfolio Occupancy Profile (Q2 FY2023 vs. Q3 FY2023)

One of the things I like about the REIT is its strong portfolio occupancy profile (where it has been maintained at above 95.0%).

In the following table, you will find a comparison of Suntec REIT’s occupancy profile recorded for the current quarter under review (i.e., Q3 FY2023 ended 30 September 2023) compared against that recorded in the previous quarter 3 months ago (i.e., Q2 FY2023 ended 30 June 2023) to find out whether or not it has continued to remain resilient:

Q2 FY2023Q3 FY2023
Singapore
– Retail
98.2%98.6%
Singapore
– Office
99.3%99.5%
Australia
– Retail & Office
96.6%95.4%
United Kingdom
– Office
100.0%93.5%

My Observations: While occupancy rates for its Australia (particularly in Southgate Complex [down from 88.6% in Q2 FY2023 to 85.8% in Q3 FY2023], and 55 Currie Street [down from 100.0% in Q2 FY2023 to 96.4% in Q3 FY2023]) and United Kingdom (in The Minister Building, where it fell from 100.0% in Q2 FY2023 to 87.3% in Q3 FY2023) properties declined slightly, but in my opinion, they still remain very strong.

The occupancy rate of its Singapore office properties went up by 0.02 percentage points (pp) due to improvements recorded in Suntec City Office (up from 99.9% in Q2 FY2023 to 100.0% in Q3 FY2023) and MBFC Towers 1 & 2 (up from 97.6% in Q2 FY2023 to 98.2% in Q3 FY2023). Rental reversion for new and/or renewed leases was a positive +12.2%.

Finally, the 0.04pp improvement in Singapore retail properties can be attributed to improvements occupancy in Suntec City Mall (up from 98.3% in Q2 FY2023 to 98.7% in Q3 FY2023) and Marina Bay Link Mall (up from 95.6% in Q2 FY2023 to 97.0% in Q3 FY2023). Rental reversion for new and/or renewed leases was up by a positive +20.2% – quite impressive in my personal opinion.

Debt Profile (Q2 FY2023 vs. Q3 FY2023)

If you have been following my reviews of the REIT’s quarterly updates, you will probably be aware that one of the things I am not too comfortable with is its debt profile – where its aggregate leverage is very close to the regulatory limit set by the Monetary Authority of Singapore (MAS), and at the same time, its interest coverage ratio is one of the lowest among all the Singapore-listed REITs.

I have been keeping a close watch on its debt profile, and at the same time, raise relevant questions to the management team to seek clarifications as and when the need to do so arises.

The table below is the REIT’s debt profile for Q3 FY2023, compared against that reported in the previous quarter (i.e., Q2 FY2023) to find out if it has improved:

Q2 FY2023Q3 FY2023
Aggregate Leverage
(%)
42.6%42.7%
Interest Coverage
Ratio (times)
2.1x2.0x
Average Term to
Debt Maturity (years)
2.90 years2.72 years
Average Cost of
Debt (%)
3.6%3.8%
% of Borrowings Hedged
to Fixed Rates (%)
~58%~55%

My Observations: Compared to the previous quarter, its debt profile weakened further (albeit just slightly) – particularly, its aggregate leverage, at 42.7%, remains dangerously close to the regulatory limit of 45.0% (why 45.0% instead of 50.0% was because the REIT’s interest coverage ratio was under 2.5x – the implication if its aggregate leverage goes above 45.0% is that it will be unable take on any bank borrowings, meaning its growth through the acquisition of properties will be impacted.)

The only positive is that the REIT has no more borrowings due for refinancing in the final quarter of FY2023. But in the coming financial years, it has 20.9% (or S$900m) of borrowings due for refinancing in FY2024, 15.5% (or $665m) of borrowings due for refinancing in FY2025, 25.3% (or S$1,089m) of borrowings due for refinancing in FY2026, and the remaining 38.3% (or S$1,646m) of borrowings due for refinancing in FY2027 or later – one thing to note that with interest rates set to stay higher for longer, and the fact that the REIT has more than 50% of borrowings due for refinancing between FY2024 and FY2026, its average cost of debt is set to rise further, and impacting its distribution payout to unitholders.

Distribution Payout to Unitholders

Suntec REIT is one of the few Singapore-listed REITs that have maintained its quarterly distribution payout frequency after switching to half-yearly reporting of its full financial results – and it’s something I like.

For the current quarter under review (i.e., Q3 FY2023), a distribution payout of 1.793 cents/unit was declared – a 14.0% decline from the distribution payout of 2.084 cents/unit declared in the same time period last year (i.e., Q3 FY2022).

On a 9-month basis, together with the distribution payout declared in Q1 (1.737 cents/unit) and in Q2 (1.739 cents/unit), its payout amounts to 5.269 cents/unit – a 23.6% decline compared against the payout of 6.984 cents/unit declared in the first 9 months of FY2022 (i.e., 9M FY2022).

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

Ex-Date: 27 October 2023
Record Date: 30 October 2023
Payout Date: 29 November 2023

Management’s Comments & Outlook (from the REIT’s Press Release)

CEO Mr Chong Kee Hiong on the REIT’s Q3 FY2023 Business Update:

The operating performance of our portfolio improved, in particular, the convention business whose recovery is ahead of schedule. However, high interest rates and energy costs continue to impact our distribution income. Suntec REIT’s continual improvement in the areas of ESG reflects our commitment to growing our business responsibly while delivering long-term value to our stakeholders.

Outlook Ahead:

Singapore Office Portfolio:

Occupiers are expected to focus on cost containment in view of global macroeconomic uncertainties. Office demand is expected to soften with rent growth slowing. Rent reversion for our Singapore Office Portfolio will remain positive with revenue strengthening on the back of past twenty-one consecutive quarters of positive rent reversions.

Suntec City Mall:

The recovery of Meetings, Incentives, Conventions and Exhibitions (“MICE”) events and the return of tourists will boost mall traffic and tenant sales. While growth in retail sales is likely to be moderated, overall tenant sales is expected to remain above pre-COVID levels. Revenue from Suntec City Mall is expected to improve, underpinned by higher occupancy, rent and marcoms revenue.

Suntec Convention:

Singapore’s MICE industry will continue to drive and benefit from the country’s tourism recovery. The convention business recovery is ahead of schedule and future growth will be driven by international, domestic and consumer events.

Australia Portfolio:

Leasing momentum is expected to slow amidst macroeconomic uncertainties. Office vacancy in Sydney and Melbourne CBD is expected to increase from slowing demand and onstream supply. In Adelaide, significant new supply in the fourth quarter of 2023 is also expected to increase vacancy in the office market. Although the portfolio occupancy is expected to remain above market level, revenue for the Australia Portfolio is likely to be lower due to leasing downtime and incentives.

United Kingdom Portfolio:

Although economic challenges continue to impact the office market, good quality assets in prime locations remain sought after. Revenue for the UK Portfolio will be impacted by leasing downtime.

Closing Thoughts

Apart from its debt profile which continues to be weak (particularly its aggregate leverage being very close to the regulatory limit of 45.0%, and also its all-in borrowing cost set to spike higher with more than 50% of borrowings due for refinancing between FY2024 and FY2026), along with higher borrowing costs and weaker Australian Dollar against the Singapore Dollar impacting its distribution payout to unitholders, the other aspects continue to remain strong – where its gross revenue (both for the 3rd quarter, as well as for the first 9 months of the financial year) continue to record a double-digit percentage growth, and its portfolio occupancy profile remaining very strong (where the overall portfolio occupancy rate of its properties in the various geographical locations at above 90%). Another thing to highlight is the double digit percentage rental reversion for new and/or renewed leases in its Singapore retail and office properties – which can support the double-digit percentage growth in its gross revenue in the coming quarters ahead in my opinion.

As a unitholder, I will continue to keep a close watch on how the management manages the REIT’s debt profile.

With that, I have come to the end of my review of Suntec REIT’s latest 3rd quarter business update. Do take note that everything you have just read in this post are purely for educational purposes only, and they do not represent any buy or sell calls for the REIT’s units. Please 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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