Suntec Real Estate Investment Trust’s Latest Earnings: Strong Growth Seen; Will More Be Ahead?

Suntec Real Estate Investment Trust (SGX: T82U) released its fiscal second-quarter earnings report late last Friday. The reporting period was from 1 April 2015 to 30 June 2015.

The real estate investment trust is focused on commercial as well as retail properties and it has stakes in Park Mall and Suntec City. The REIT 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 Suntec REIT in here.

Financial highlights

The following’s a quick take on the REIT’s latest set of financial figures:

  1. Gross revenue rose to $81.4 million in the reporting quarter, up 19.6% from the same quarter a year ago. Revenue was up across the board, with the main contribution coming from Suntec City’s retail segment.
  2. Following suit, net property income (NPI) rose by 23.5% year over year. For the reporting quarter, NPI came in at $56.9 million, compared to $46.1 million for the same quarter a year ago.
  3. Suntec REIT’s other income for the quarter fell by 29.3% year over year to $3.1 million. As a reminder, the other income is where the income support for the REIT’s ownership stake of Marina Bay Financial Centre (Tower 1 and Tower 2) and the Marina Bay Link Mall resides. My colleague Chong Ser Jing has previously wrote here on the need for investors to keep a wary eye on this line for REITs in general.
  4. Share of profit of joint ventures rose 3.5% from $14.2 million in the second quarter of last year to $14.7 million in the reporting quarter. This line item refers to Suntec REIT’s one-third interests in One Raffles Quay, Marina Bay Financial Centre (Tower 1 and Tower 2) and the Marina Bay Link Mall.
  5. The strong top-line growth had managed to make its way to the bottom-line with the REIT’s distribution per unit (DPU) for the reporting quarter up 10.3% year over year from 2.266 cents to 2.5 cents.
  6. Suntec REIT ended the reporting quarter with an adjusted net asset value per unit of $2.076. This represents an increase of 1.5% from the selfsame figure of $2.046 that was seen a year ago.

Beyond these, Foolish investors might want to keep an eye on the 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 for Suntec REIT below:

2015-07 Suntec REIT Debt Table

Source: Suntec REIT’s earnings presentation

Suntec REIT has $50 million in refinancing obligations for 2015, and $370 million worth of debt-refinancing needed for 2016. The majority of its loans are due in 2018 and 2019 when around $2.1 billion worth of loans become due.

As usual, the progress in a REIT’s refinancing of debt is where Foolish investors should keep a watchful eye on. With Suntec REIT’s all-in financing costs having creeped up from 2.44% at end-2014 to 2.7% in the reporting quarter, the terms of any new borrowings taken on by the REIT in the name of refinancing should be observed.

Operational highlights

The opening of Phase 2 of Suntec City Mall’s asset enhancement initiative (AEI) in June 2014 had a strong influence on this quarter’s results.

On its overall retail portfolio, Suntec REIT had managed an occupancy level of 95.1% for its fiscal second-quarter, a step down from the selfsame figure of 97.6% a year ago.

Elsewhere, Suntec REIT had a 99% occupancy rate for its overall office portfolio in the reporting quarter. While 99% is a great figure, this still represents a slight fall from the 99.7% occupancy rate a year ago that was seen.

Phase 3 of Suntec City’s AEI is “opening now”. As mentioned in a previous article of mine, the AEI exercise is expected to increase the retail net lettable area of the property from 855,000 square feet to 960,000 square feet. With more retail space coming online, we should keep our Foolish eyes on how this translates to higher revenue, NPI, and subsequently, higher DPU.

Looking forward, Yeo See Kiat, Chief Executive Officer of the REIT’s Manager, had the following statement to add:

“We are pleased to report that our office portfolio continues to perform strongly. In the second quarter of 2015, we have renewed and replaced approximately 169,000 sq ft of leases, leaving us with a balance of only 6.0% of the office leases due to expire in 2015. Looking ahead, notwithstanding the impending supply in 2016 and 2017, we remain positive on the performance of our office portfolio in 2015.”

During the quarter, Suntec REIT also announced the divestment of its Park Mall property to a joint venture group. Under the new joint venture structure, Suntec REIT will retain a 30% interest. Yeo added:

“The divestment is in line with Suntec REIT’s proactive approach in reviewing and evaluating asset plans of its portfolio. In addition, the redevelopment will unlock the underlying value of the property by further enhancing the gross floor area of the site and Suntec REIT will have the ability to own part of the redeveloped property by acquiring one office block upon completion.”

Foolish summary

Suntec REIT last traded at S$1.73 last Friday. This translates to a historical price-to-book ratio of 0.83 and a trailing-12-months distribution yield of around 5.6%.

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In the mean time, if you'd like to talk stocks in person, you can even come meet David Kuo and the rest of the Fool Singapore team on August 15! Please join us at Invest FAIR Singapore on 15 August. (Suntec Centre, Booth B-16). Come chat with us at our booth, and see our MAS-licensed Director, David Kuo, give his official SGX investor presentation.

You won't want to miss this! Add Invest FAIR Singapore to your calendar today.

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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 Real Estate Investment Trust.