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Suntec Real Estate Investment Trust’s Latest Earnings: Distribution Increases 8.3%, But Can it Last?

Suntec Real Estate Investment Trust (SGX: T82U) released its fiscal third-quarter earnings report yesterday evening. The reporting period was from 1 July 2015 to 30 September 2015.

The real estate investment trust (REIT) has stakes in Park Mall and Suntec City. It also has a one-third interest in each of One Raffles QuayMarina Bay Financial Centre (Tower 1 and Tower 2), and the Marina Bay Link Mall. Last but not least, the REIT has a full interest in a commercial building development in Australia.

You can read more about Suntec REIT in here or catch up with the last quarter’s earnings here.

Financial highlights

The following’s a quick summary of the REIT’s latest financial figures:

  1. Gross revenue rose to $86.1 million in the latest quarter, up 20.4% from the same quarter a year ago.
  2. Net property income (NPI) followed suit with a 19.9% increase year-on-year. For the reporting quarter, NPI came in at $58.5 million, compared to $48.8 million seen in the same quarter a year ago.
  3. The “Other income” line item fell by 34.2% year-on-year to $3.9 million in the reporting quarter. As a reminder, the “Other income” line item represents the income support for the REIT’s ownership stake in Marina Bay Financial Centre (Tower 1 and Tower 2) and the Marina Bay Link Mall. This is worth keeping an eye on.
  4. Share of profit of joint ventures dipped by 3.6% from $14.4 million in the third quarter last year to $13.9 million in the reporting quarter. The share of profit refers to the REIT’s one third interest each in One Raffles Quay and Marina Bay Financial Centre (Tower 1 and Tower 2) and the Marina Bay Link Mall.
  5. Distribution per unit (DPU) for the fourth quarter was 2.522 cents, an 8.3% increase from 2.328 cents in the third-quarter a year ago. Distribution per unit from operations grew 2.3% year-on-year while the remainder came from capital distribution.
  6. Suntec REIT’s assets under management currently stand at $8.8 billion. The REIT also reported an adjusted net asset value per unit of $2.066 as of 30 September 2015; this is up 1.6% from the figure of $2.033 seen at the same period 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 a REIT is funded and its sensitivity to the interest rate environment. These are summarized for Suntec REIT below:

2015-10 Suntec REIT table

Source: Suntec REIT’s earnings presentation

Compared to a year ago, the REIT’s interest coverage ratio has slipped slightly while its all-in financing cost has inched up. The weighted average debt maturity also decreased markedly compared to a year ago. These are all negative developments and investors may want to watch future changes in these areas.

Suntec REIT has $74 million and $370 million in refinancing obligations for 2015 and 2016, respectively. The majority of its loans are due in 2018 and 2019 when around $2.1 billion worth of  loans will become due.

The REIT’s progress in refinancing of debt is where Foolish investors may want to keep a watchful eye on.

Operational highlights

Suntec REIT’s strong results can be attributed to the opening of Phase 3 of Suntec City Mall following a three year asset enhancement initiative (AEI) for the property.

On the retail side of the business, Suntec REIT’s portfolio occupancy improved to 96.5%. Elsewhere, the office portfolio occupancy was maintained at a solid 98.9%. Lease renewal for both the office and retail segments have been largely completed for 2015.

Yeo See Kiat, the chief executive of Suntec REIT’s manager, had given the following comments on the REIT’s performance in the earnings release:

“We are pleased to report that our office portfolio continues to perform strongly. In the third quarter of 2015, we have renewed and replaced approximately 270,000 sq ft of leases, leaving us with a balance of only 1.4% of the office leases due to expire in 2015. We remain positive on the performance of our office portfolio in 2015.

Today marks an important milestone for Suntec City as we celebrate its official opening. After three years of asset enhancement works, Suntec City is now more vibrant and exciting with its many attractions, dining concepts and diverse retail offerings. The newly opened Sky Garden allows diners to enjoy both alfresco and indoor dining ambience in a garden setting, overlooking the iconic Fountain of Wealth.”

Foolish summary

Suntec REIT last traded at $1.64 on Thursday. This translates to a historical price-to-book ratio of 0.79 and a distribution yield of around 6%.

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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.