3 Things Investors Should Know From Suntec Real Estate Investment Trust’s Latest Earnings

Suntec Real Estate Investment Trust (SGX: T82U) is one of the largest REITs in Singapore and currently has interests in retail malls and offices in Singapore and Australia.

Its portfolio includes Suntec City, a one-third interest in One Raffles Quay, a commercial building in Sydney, and a 25% stake in Southgate Complex in Melbourne, just to name a few.

In late October, Suntec REIT reported its 2017 third quarter earnings. Let’s look at three useful pieces of information investors may want to know from the announcement:

1. The overall result

The following table shows the results of Suntec REIT for the reporting quarter:

Source: Suntec REIT 2017 third quarter earnings press release

We can see that Suntec REIT managed to grow its gross revenue and net property income. New rental contributions from 177 Pacific Highway (the aforementioned commercial building in Sydney), which was completed in August 2016, was the main contributor to the REIT’s top-line growth.

But, Suntec REIT’s distribution per unit (DPU) declined despite an increase in the distributable income. This is because of an enlarged unit base as a result of new units created from the conversion of S$166.5 million worth of convertible bonds. .

2. The occupancy rate

The occupancy rate for a REIT is an important metric to look at since it gauges the strength of the market demand for the REIT’s properties.

At the end of the reporting quarter, Suntec REIT’s overall office and retail occupancy rates stood at 98.6% and 98.8%, respectively.

For the office segment, the Singapore portfolio’s occupancy rate declined marginally from 99.3% in the third quarter of 2016 to 99.0%. The REIT’s Australia office portfolio occupancy rate also declined from 100% last year to 97.0%.

For the retail segment, Suntec REIT’s Singapore properties achieved an occupancy rate of 99.1%, up from 97.3% a year ago. Meanwhile, the Australia properties achieved an occupancy rate of 87.8% at the end of the reporting quarter; the Australian retail property portfolio is new for Suntec REIT and wasn’t there a year ago.

3. Singapore office property market

During the third quarter of 2017, offices accounted for 68% of Suntec REIT’s net property income (NPI) and income contribution from joint-ventures. In turn, the Singapore offices in Suntec REIT’s portfolio made up nearly 80% of the office-segment’s NPI and income contribution from joint-ventures.

These numbers show how important the Singapore office segment is to Suntec REIT’s overall business. Here’s a chart showing the occupancy rates of the REIT’s Singapore office portfolio and the overall CBD (central business district) Grade A office market going back to June 2010:

Source: Suntec REIT Q3 FY17 Presentation

We can see that Suntec REIT’s Singapore office portfolio has consistently achieved a higher occupancy rate as compared to the market. In its earnings release, Suntec REIT gave the following commentary on the outlook for the Singapore office market:

“The Singapore office market improved in the third quarter of 2017 on the back of stronger economic conditions and positive business sentiment. With the high occupancy in existing quality buildings and substantial commitments in the newly completed buildings, the overall CBD rents increased by 4.3% to $8.86 psf/mth. The overall CBD occupancy decreased by 5.1% to 88.1% due to the inclusion of Marina One which was completed during the quarter.”

If you like what you've seen, you can get even more investing insights and analyses from The Motley Fool's investing newsletter Take Stock Singapore. It's FREE, so do check it out here.

Also, like us on Facebook to follow our latest news and articles. The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.