Suntec Real Estate Investment Trust’s Latest Earnings: Distribution Falls by 5.6%

Suntec Real Estate Investment Trust (SGX: T82U) released its earnings report for the quarter and year ended 31 December 2016 yesterday.

As a quick background, the real estate investment trust (REIT) has partial stakes in Park Mall and Suntec City. Suntec REIT also has one-third interests 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 also owns two commercial properties in Australia.

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

Financial highlights

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

  1. Gross revenue rose 1.6% year-on-year to $88.9 million in the reporting quarter. For the whole of 2016, gross revenue decreased by 0.3% to $328.6 million.
  2. But, net property income (NPI) for the quarter fell 2.9% year-on-year to $60.7 million. For the full year, NPI decreased by 2% to $224.5 million.
  3. The “other income” line item in the reporting quarter fell to zero, down from $3.8 million recorded in 2015’s fourth quarter. For the entire 2016, “other income” was also zero, down from 2015’s $13.8 million. 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. This figure is worth keeping an eye on.
  4. The REIT’s share of profit of joint ventures also fell by 43.7% from $56.6 million in 2015’s fourth quarter to $31.8 million in the reporting quarter. This comes from Suntec REIT’s 30% stake in Parkway Mall and its one-third interest in each of One Raffles Quay, Marina Bay Financial Centre (Tower 1 and Tower 2), and the Marina Bay Link Mall. Share of profit of joint ventures finished the year at $84.9 million, down 15.2% from 2015.
  5. Distribution per unit (DPU) was 2.596 cents for the fourth quarter of 2016, a 5.6% decline from the 2.75 cents seen in the fourth quarter the year before. DPU from operations fell by 5.6% year-on-year to 2.282 cents while DPU from capital dipped by 5.4% to 0.314 cents. (The sum of DPU from operations and DPU from capital makes up the total DPU.) For 2016, the REIT’s DPU was 10.003 cents, a very slight increase from 2015’s 10.002 cents.
  6. Suntec REIT’s assets under management currently stand at $9.5 billion. The REIT also ended 2016 with an adjusted net asset value per unit of $2.121, down from the $2.127 recorded at end-2015.

Beyond these, Foolish investors may 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. The table below shows Suntec REIT’s debt profile and the changes seen over the past year:

2017-01-25 Suntec REIT Debt Table
Source: Suntec REIT’s earnings presentation

Suntec REIT’s financing cost has declined to 2.28%, but its interest coverage ratio dipped slightly. Moreover, its total borrowings and aggregate leverage ratio had both increased, albeit at a small clip.

Meanwhile, Suntec REIT has $100 million in debt to refinance in 2017 and $1.1 billion in 2018. The REIT’s progress in refinancing its debt is another area investors may want to keep an eye on.

Operational highlights

On the retail side of Suntec REIT’s portfolio, occupancy was 97.7%, down slightly from the 97.9% seen a year ago. On the commercial side, Suntec REIT reported an occupancy rate of 98.6%, which is down from the 99.3% achieved in 2015.

Chan Kong Leong, the chief executive of the REIT’s manager, summed up Suntec REIT’s reporting quarter and year with the following statements:

“Notwithstanding the fourth quarter year-on-year dip in distributable income which was mainly due to the divestment of Park Mall, we are pleased to report that for the financial year ended 2016, we have maintained the distributable income and DPU at similar levels as FY15.

While we remain Singapore-centric, we have in 2016, deepened our presence in Australia with the acquisition of an initial 25% interest in the iconic Southgate Complex, Melbourne. We have also demonstrated our execution and development capabilities with the practical completion of 177 Pacific Highway on 1 August 2016.”

Looking ahead, Suntec REIT expects both its retail and office portfolio’s performances to “remain stable.”

Suntec REIT’s units closed at $1.70 each on Wednesday. This translates to a historical price-to-book ratio of 0.80 and a distribution yield of around 5.9%.

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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.