Suntec Real Estate Investment Trust’s Latest Earnings: Distribution Increases 6.7%, But Can it Last?

Suntec Real Estate Investment Trust (SGX: T82U) released its fiscal fourth-quarter earnings report yesterday. The reporting period was from 1 October 2015 to 31 December 2015.

The real estate investment trust (REIT) has partial stakes in 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. Last but not least, the REIT has full ownership of a commercial building development in North Sydney, Australia.

You can read more about the REIT in here or catch up with the results from its last quarter in here.

Financial highlights

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

  1. Gross revenue rose to $87.5 million in the latest quarter, up 13.9% from the same quarter a year ago. For 2015, gross revenue rose 16.7% to $329.5 million.
  2. Net property income (NPI) for the quarter followed suit with a 17.9% increase year-on-year to $62.5 million. For the full year, NPI increased by 19.6% to $229.2 million.
  3. The “Other income” line item fell by 22.5% year-on-year to $3.8 million in the reporting quarter. As a reminder, the “Other income” line item represents the income support for the REIT’s ownership stakes in Marina Bay Financial Centre (Tower 1 and Tower 2) and the Marina Bay Link Mall. For the full year, income support was $13.7 million, down by 28.9% from the previous year. This figure is worth keeping an eye on.
  4. Share of profit of joint ventures also fell by 40.1% from $94.5 million in the fourth-quarter of 2014 to $56.5 million in the reporting quarter. The share of profit refers to (a) Suntec REIT’s one-third interest in each of One Raffles Quay,  Marina Bay Financial Centre (Tower 1 and Tower 2), and the Marina Bay Link Mall and (b) its 30% stake in Parkway Mall. Share of profit of joint ventures finished 2015 at $100 million, a 28% decline from the previous year.
  5. Distribution per unit (DPU) for the reporting quarter was 2.75 cents, a 6.7% increase from 2.577 cents in the fourth-quarter a year ago. Distribution per unit from operations grew 0.9% year-on-year, while the remainder came from capital distribution. For 2015, the total DPU was 10.002 cents, up 6.4% from 2014.
  6. The REIT’s asset under management stood at $9.3 billion at end-2015. The REIT also reported an adjusted net asset value per unit of $2.127 as of 31 December 2015, up 1.7% from $2.091 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 summarised for Suntec REIT below:

2016-01 Suntec debt table
Source: Suntec REIT’s earnings presentation

Compared to a year ago, the REIT’s financing cost has crept up to 2.86%. The weighted average debt maturity had also decreased markedly compared to a year ago.

Elsewhere, Suntec REIT has $250 million in loans to refinance in 2016 and $200 million for 2017. 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 the asset enhancement initiative (AEI) at Suntec City Mall and higher revenue from Suntec Singapore Convention and Exhibition Centre. The opening marks the completion of a three year AEI for the mall.

On the retail side of the REIT’s properties, occupancy had slipped from 99.7% a year ago to 97.9%. Meanwhile, Suntec REIT had maintained a solid 99.3% office portfolio occupancy, though that’s a small decline from the 100% occupancy seen at end-2014.

Summing up the quarter, Yeo See Kiat, Chief Executive Officer of the REIT’s manager, had given the following statement in the earnings release:

“We are pleased to report that during the fourth quarter of 2015, the distributable income from operations grew 1.7% year-on-year to S$61.1 million. This was mainly attributable to the higher net property income from the completion of Suntec City Phase 3. Including a capital distribution of S$8.4 million, distributable income of S$69.5 million was 7.7% higher year-on-year.”

He also added:

We are pleased to report that our office portfolio continued to perform strongly. In 2015, we have renewed and replaced approximately 710,000 sq ft of leases, leaving us with a balance of only 14.9% due to expire in 2016. Looking ahead, we expect the performance of our office portfolio to be stable in 2016.”

In addition, Yeo had commented on the REIT’s near-term outlook:

“Notwithstanding the impending headwinds, with the completion of the asset enhancement works for Suntec City, the retail contribution from Suntec City is also expected to be positive.”

Foolish summary

Suntec REIT last traded at $1.51 on Tuesday. This translates to a historical price-to-book ratio of 0.71 and a trailing distribution yield of around 6.6%.

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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 units in Suntec Real Estate Investment Trust.