Suntec Real Estate Investment Trust’s Latest Earnings: What Investors Should Know

Suntec Real Estate Investment Trust (SGX: T82U) released its fiscal fourth quarter earnings report last Thursday. The reporting period was from 1 October 2014 to 31 December 2014.

The real estate investment trust (REIT) has full ownership of Park Mall and Suntec City. It also has a one-third interest in each of One Raffles Quay, Marina Bay Financial Centre (Tower 1 and Tower 2) and the Marina Bay Link Mall. You can read more about the REIT here.

Financial highlights

Here’s a rundown on the financial figures for Suntec REIT’s latest results:

  1. Gross revenue rose to $76.8 million in the quarter, up 7.3% from the same quarter a year ago. For the whole of 2014, the REIT saw its gross revenue rise by 20.6% to $282.4 million.
  2. Net property income (NPI) for the quarter grew by 6.5% year-on-year to S$53 million. NPI for the whole of 2014 had increased by 28.9% to $191.6 million as compared to 2013.
  3. In the quarter, contribution from other income fell by 13.4% to $4.9 million on a year-on-year comparison. Other income totaled $19.3 million for the whole of 2014. As a reminder, the other income line item is where the income support for the REIT’s partial ownership of Marina Bay Financial Centre (Tower 1 and Tower 2) and the Marina Bay Link Mall resides. My colleague Ser Jing wrote here about why we need to keep a wary eye on this line item in the income statement of a REIT.
  4. Share of profit of joint ventures fell from $125.3 million in the fourth quarter of 2013 to $94.5 million. This would be worth digging into further to understand the reasons behind. For the whole of 2014, Suntec REIT received $139 million from this line item, a decrease from the figure of $172 million a year ago.
  5. Distribution per unit (DPU) for the fourth quarter of 2014 was 2.577 cents, a tamer 0.6% increase from the 2.562 cents declared in the fourth quarter last year. The REIT ended 2014 with a distribution of 9.4 cents per unit for the full year. This represented a small 0.8% increase from the DPU paid out for 2013.
  6. Suntec REIT’s asset under management stood at $8.6 billion, with an adjusted net asset value (NAV) per unit of $2.091. The REIT’s NAV per unit had declined from $2.108 at the end of 2013.

Foolish investors might want to keep an eye on a REIT’s debt profile. The debt profile may provide clues on how the REIT is funded, and its sensitivity to the interest rate environment. These are summarized below for Suntec REIT:

Debt to asset ratio 34.7%
Interest Coverage Ratio 4.3 times
Weighted Average Debt to Maturity 3.63 years
All-in Financing Cost 2.44%
Total borrowings $3.0 billion

Source: Suntec REIT’s presentation material

It’s notable that Suntec REIT has no refinancing obligations for 2015, and has a total of only $570 million coming due in 2016 and 2017.

As such, the next big test in flexibility of funding for the REIT will come in 2018, when about $1.28 billion of its loans become due (that’s more than 40% of its current total borrowings). As usual, the progress in refinancing of debt is where Foolish investors should keep a watchful eye on.

Operational highlights

Suntec REIT managed to maintain a 100% office portfolio occupancy for the quarter. On the retail portfolio, the REIT kept up a healthy 99.7% occupancy rate.

Phase 3 of Suntec City’s asset enhancement initiative (AEI) is expected to open soon. This looks like the final phase of an AEI exercise which is expected to increase the property’s retail net lease area from 855,000 square feet to 960,000 square feet.

The 20.6% increase in gross revenue for 2014 as compared to 2013 can actually be attributed to the opening of Phase 1 and Phase 2 of Suntec City’s AEI. We should continue to keep our Foolish eyes on how these investments in AEI translates to higher revenue and NPI  and subsequently, higher DPU.

Looking forward, Mr Yeo See Kiat, Chief Executive Officer of the REIT’s manager had this statement to add:

“Our current priorities are to focus on the completion of the remaking of Suntec City as well as proactive lease management to maintain our high occupancy levels of both our office and retail portfolios.

As Suntec REIT completes our first ten years journey since our IPO in Dec 2004, I’m pleased that we managed to deliver a total DPU of 93.5 cents and gave a total return of 189% to our unitholders.”

Foolish summary

Suntec REIT last traded at S$2.00 last Friday. This translates to a historical price-to-book ratio of 0.96 and a distribution yield of around 4.7% (based on its DPU of 9.4 cents for the whole of 2014).

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong owns shares in Suntec REIT.