Suntec REIT (SGX: T82U) invests in retail and office properties in Singapore (where it owns include Suntec City [including the retail, office, and convention centre], One Raffles Quay, Marina Bay Financial Centre, and Marina Bay Link Mall), Australia (where it owns 177 Pacific Highway and 21 Harris Street in Sydney, Southgate Complex and Olderfleet, 477 Collins Street in Melbourne, and 55 Currie Street in Adelaide), as well as in the United Kingdom (where it owns Nova Properties [including Nova North, Nova South, and The Nova Building], as well as The Minster Building).

Yesterday evening (24 October 2024), the commercial REIT released its business update for the 3rd quarter, as well as for the first 9 months of the financial year ended 30 September 2024, and in this post, you will find some of the key aspects to take note of about its latest financial performances, portfolio occupancy and debt profile, as well as its distribution payout to unitholders.

Let's begin:

Key Financial Performances (Q3 FY2023 vs. Q3 FY2024, and 9M FY2023 vs. 9M FY2024)

In this section, you will find Suntec REIT's key financial performances recorded for the 3rd quarter, as well as for the first 9 months of the current financial year 2024, compared against the respective time periods last year:

Q3 FY2023 vs. Q3 FY2024:

My Observations: After year-on-year improvements recorded in the 1st, as well as in the 2nd quarter of FY2024 compared against the respective periods a year ago, Suntec REIT's financial figures for the 3rd quarter of FY2024 fell again compared to the same time period last year.

Its gross revenue and net property income fell by 4.6% and 5.7% to S$117.7 million and S$79.8 million respectively due to lower contribution from Suntec Convention, 55 Currie Street (Adelaide), and The Minster Building (London). However, this was partially offset by stronger operating performance at Suntec City office and mall.

The 11.2% decline in the REIT's distributable income to unitholders was due to the completion of capital distribution (of S$5.8 million), along with vacancies at 55 Currie Street and The Minster Building, partially offset by improved operating performance from Suntec City Office, MBFC properties, One Raffles Quay, and Southgate Complex.

9M FY2023 vs. 9M FY2024:

My Observations: Suntec REIT did not provide any financial figures for the first 9 months of FY2024 – I've computed them based on the financial figures reported for each of the 3 quarters of the respective financial years.

As you can see from the table above, it was a weaker set of results – with gross revenue and net property income recording a low single-digit percentage decline, and distributable income to unitholders recording a low double-digit percentage decline.

Portfolio Occupancy Profile (Q2 FY2024 vs. Q3 FY2024)

Moving on, let us take a look at Suntec REIT's portfolio occupancy recorded for the 3rd quarter of the financial year 2024 ended 30 September, compared against that recorded in the previous quarter 3 months ago (i.e., the 2nd quarter of the financial year 2024 ended 30 June) in the table below to find out if it has continued to remain resilient, or showing signs of weakness:

My Observations: On the whole, the occupancy rates of Suntec REIT's properties in the various geographical locations continue to remain strong – where they are all above 90%.

Its retail properties in Singapore improved by 2.7pp to 98.3% due to improvements in the occupancy rate of Suntec City Mall (up from 95.6% in Q2 FY2024 to 98.4% in Q3 FY2024).

The occupancy rate of its Singapore office properties dipped by 0.2pp due to a slight drop in the occupancy rates in Suntec City Office, as well as in One Raffles Quay – however, they are still remained at very high levels of 99.9% and 98.7% respectively.

For its Australia properties, there's a slight improvement by 1.5pp to 90.6%, due to improvements in the occupancy rates in 21 Harris Street in Sydney (from 98.8% in Q2 FY2024 to 100% in Q3 FY2024), Southgate Complex (from 87.3% in Q2 FY2024 to 89.2% in Q3 FY2024), as well as in 55 Currie Street (from 56.2% in Q2 FY2024 to 61.4% in Q3 FY2024). Apart from 55 Currie Street and Southgate Complex, the other properties are fully occupied.

The only slight negative is in the occupancy rate of its UK offices, which dipped by 0.2pp to 95.3% – due to a slight 0.4pp drop in the occupancy rate of Nova Properties, while The Minster Building continues to be 100% occupied.

Finally, as far as rental reversions of new and/or renewed leases are concerned, a positive rental reversion was reported for all the geographical locations.

Debt Profile (Q2 FY2024 vs. Q3 FY2024)

One of the biggest headwinds faced by the REIT at the moment is its high aggregate leverage (which was at 42.3% in Q2 FY2024 ended 30 June), along with its low interest coverage (at just 1.9x in Q2 FY2024 – and because of this low interest coverage ratio, its aggregate leverage limit is set at 45.0% instead of 50.0%), and low percentage of borrowings hedged at fixed rates (at about 55% in Q2 FY2024 – however, with the US Federal Reserve set to cut interest rates from now till end-2026, Suntec REIT is poised to be among the first to benefit from lower borrowing rates as it has 45% of borrowings at floating rates).

Has Suntec REIT's debt profile improved in the current quarter under review (i.e., Q3 FY2024 ended 30 September) compared to the previous quarter 3 months ago (i.e., Q2 FY2024 ended 30 June)? Let us find out in the table below:

My Observations: Compared to the previous quarter, Suntec REIT's debt profile remained more or less unchanged – with the only noticeable change is the further increase of borrowings hedged to fixed rates (up by 6 percentage points [pp] from approximately 55% to 61%).

Looking at its debt maturity profile, it does not have any borrowings due for refinancing in FY2024. In the coming financial years ahead, its debt maturity is well-spread out, where, between FY2025 and FY2027, it has about 16% of borrowings due for refinancing each year, with the remaining 52% of borrowings due for refinancing only in FY2028 or later.

Distribution Payout to Unitholders

Suntec REIT is one of the few Singapore-listed REITs that have continued to declare a distribution payout to the unitholders on a quarterly basis.

For Q3 FY2024, a distribution payout of 1.580 cents/unit was declared. Compared to its distribution payout of 1.793 cents/unit declared in the same time period a year ago, this represented a decline of 11.9%.

However, if I were to compare its payout for Q3 FY2024 against that in Q1 FY2024 (where a distribution payout of 1.511 cents/unit was declared), as well as in Q2 FY2024 (where a distribution payout of 1.531 cents/unit was declared), you'll notice that its distribution payout have been improving slowly – which is a positive sign (at least in my opinion).

If you are a unitholder of Suntec REIT, do take note of the following dates on its upcoming distribution payout:

Ex-Date: 01 November 20204
Record Date: 04 November 2024
Payout Date: 28 November 2024

CEO Mr Chong Hee Kiong's Comments and Outlook (from the REIT's Press Release)

"The Singapore Office and Retail portfolios continued to achieve strong occupancies and robust rent reversions. While Melbourne and Adelaide market conditions remain weak, leasing has gained traction as occupancy at 55 Currie Street and Southgate Complex improved.

Suntec REIT's continual advancement in the areas of ESG reflects our commitment to growing our business responsibly. We remain focused on strengthening the operating performance of our assets and will explore opportunities to divest our mature assets while delivering long-term value to our stakeholders."

Closing Thoughts

Overall, I would say its a mixed-set of results reported by Suntec REIT – no doubt its financial performances have declined (both for the 3rd quarter, as well as for the first 9 months of FY2024), but the occupancy rate of the properties have remained at very high levels, with positive rental reversions reported for new and/or renewed leases signed during the current 3rd quarter under review.

As far as its debt profile is concerned, the decline has more or less stabilised since the 1st quarter of FY2024 – which is a positive sign. However, with its aggregate leverage at 42.3%, it is still at the high side, and very close to the regulatory limit of 45% (the limit is as such due to its interest coverage ratio under 2.5x) – I will continue to keep a close watch on the statistics reported in the coming quarters ahead.

Finally, no doubt its distribution payout have declined by 11.9% in the 3rd quarter of FY2024 compared to the payout declared a year ago, but it has slowly increased each quarter since the 1st quarter of FY2024 – to me its a slight positive.

With that, I have come to the end of my review of Suntec REItT's latest 3rd quarter business update released last evening. I hope you have found the contents presented in this post useful. However, at the same time, do note that all the opinions expressed in this post are purely mine which I am sharing for educational purposes only. They do not constitute any buy or sell calls for the REIT's units. Please do your own due diligence before you make any investment decisions.

Related Documents:

• Press Release
• Presentation Slides

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

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