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

Suntec Real Estate Investment Trust (SGX: T82U) released its second-quarter earnings report yesterday. The reporting period was from 1 April 2016 to 30 June 2016.

The real estate investment trust (REIT) has stakes in Suntec City as well as One Raffles Quay, Marina Bay Financial Centre (Tower 1 and Tower 2), Marina Bay Link Mall, and Park Mall. Last but not least, the REIT also has a full interest in a commercial building in Australia that’s under development.

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’s a quick summary on some of Suntec REIT’s latest financial figures:

  1. Gross revenue was $78.9 million in the reporting quarter, down 3.1% from the same quarter a year ago.
  2. Net property income (NPI) fell by 7.5% year-on-year from $56.9 million to $52.7 million.
  3. The “Other income” line item was zero for the reporting quarter. This is a decline from the $3.1 million seen in the corresponding quarter last year. As a reminder, the “Other income” line item represents the income support the REIT receives for its ownership stakes in Marina Bay Financial Centre (Tower 1 and Tower 2) and the Marina Bay Link Mall. This figure is worth keeping an eye on.
  4. Share of profit of joint ventures rose by 12.2% from $14.7 million in the second-quarter of 2015 to $16.5 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 as well as its 30% stake in Parkway Mall.
  5. Distribution per unit (DPU) was 2.501 cents, nearly identical to the 2.5 cents seen in the second-quarter of 2015. Distribution per unit from operations fell by 3.4% year-on-year, so the increase came from capital distribution.
  6. The REIT’s assets under management stood at $9.3 billion as of end-2015. The REIT also ended the reporting quarter with a net asset value per unit of $2.126, up a slight 1.2% from a year ago.

Beyond the above, investors might also 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:

Suntec REIT Q2 2016 debt profile
Source: Suntec REIT’s earnings presentation

Suntec REIT’s financing cost has crept up to 2.77% while its interest coverage ratio has drifted down to 3.6 times. The good thing is the REIT’s debt-to-asset ratio and total borrowings have both declined.

Meanwhile, the REIT has refinanced its 2016 debt obligations by entering a $250 million term loan facility that will come due in 2021. Investors may want to watch a REIT’s progress in refinancing debt.

Operational highlights

Suntec REIT’s revenue and NPI both fell due to the divestment of most of its Park Mall stake. This was offset by the opening of Phase 3 of Suntec City Mall’s asset enhancement initiative.

On the retail side, Suntec REIT’s portfolio occupancy improved to 97.7% from 95.1% seen a year ago. The office portfolio occupancy had dipped a little from 99%, but was still maintained at a solid 98.9%.

Suntec REIT had launched a loyalty programme, Suntec Rewards, in July 2015. In the earnings release, Yeo See Kiat, the chief executive of Suntec REIT’s manager, had shared some details about the programme’s progress:

“With the changing retail landscape, we have enhanced shoppers’ experience and driven customer loyalty via Suntec Rewards, the new digital platform which brings together Suntec City’s community of retailers, shoppers, PMEBs [professionals, managers, executives and businessmen], tourists and MICE delegates. Over 43,000 members have signed up with our Suntec Rewards programme since its launch in July 2015.”

A future outlook

Looking ahead, Suntec REIT’s manager “expects the retail contribution from Suntec City to remain stable.” The office portfolio’s performance is also expected to be “stable.”

The REIT commented in its earnings release that the Singapore office market “remained sluggish in the second quarter of 2016” and that the “Singapore retail sector continued to face challenges in the second quarter of 2016.”

Suntec REIT’s units closed at a price of $1.78 on Thursday. This translates to a historical price-to-book ratio of 0.84 and a distribution yield of around 5.7%.

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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.