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Suntec REIT reports 9.7% drop in 2HFY2022 DPU of 4.074 cents

Felicia Tan
Felicia Tan1/20/2023 08:13 AM GMT+08  • 6 min read
Suntec REIT reports 9.7% drop in 2HFY2022 DPU of 4.074 cents
Suntec REIT's FY2022 DPU increased by 2.5% y-o-y to 8.884 cents. Photo: Samuel Isaac Chua/The Edge Singapore
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The manager of Suntec REIT has reported a distribution per unit (DPU) of 4.074 cents for the 2HFY2022 ended Dec 31, 2022.

The DPU is 9.7% lower than the DPU of 4.512 cents reported in the corresponding period the year before. According to the REIT manager, the y-o-y decline was attributable to a sharp increase in financing costs.

Distributable income fell by 9.0% y-o-y to $117.4 million.

Gross revenue for the 2HFY2022 increased by 16.9% y-o-y to $223.7 million due to higher revenue from Suntec City and Suntec Singapore but offset by lower revenue from the REIT’s properties in Australia. The higher revenue for Suntec City and Suntec Singapore was due to the higher retail revenue and higher convention revenue while the lower revenue from Australia was due to the weaker Australian dollar (AUD) and the absence of a one-off surrender fee received in the 2HFY2021 for 177 Pacific Highway.

Property expenses rose by 23.5% y-o-y to $60.9 million.

Accordingly, net property income (NPI) increased by 14.7% y-o-y to $162.8 million. The higher NPI was attributed to the higher revenue from Suntec Singapore and The Minster Building in the UK. It is also attributed to the higher revenue, lower property tax and the write-back of rent rebates for Suntec City. The higher NPI was offset by lower revenue from the REIT’s Australian properties, 177 Pacific Highway, 55 Currie Street and Olderfleet, 477 Collins Street.

See also: Koh Brothers Eco Engineering reports 7% rise in net profit in FY2022

Other income fell by 40.0% y-o-y to $4.0 million due to lower income support claimed.

Share of profit of joint ventures (JVs) fell by 30.7% y-o-y to $40.7 million due to a lower share of revaluation gain from investment properties as well as lower contributions from One Raffles Quay and the Marina Bay Financial Centre properties. The lower contributions were due to leasing and property maintenance expense, as well as higher interest expense.

FY2022

See also: Koh Brothers reports 13% decline in net profit for FY2022

For the FY2022, Suntec REIT’s DPU stood at 8.884 cents, 2.5% higher than the FY2021’s DPU of 8.666 cents. The DPU increase was attributed to a capital distribution of $23.0 million.

The REIT’s higher DPU was also attributed to the higher distributable income, which rose by 3.4% y-o-y to $255.5 million.

FY2022’s gross revenue increased by 19.3% y-o-y to $427.3 million due to higher revenue from Suntec City, Suntec Singapore, 21 Harris Street and Olderfleet, 477 Collins Street. The Minster Building’s full year contribution also added to the higher gross revenue. The REIT’s gross revenue for the year was, however, partly offset by lower revenue from 177 Pacific Highway and 55 Currie Street.

Revenue from Suntec City was due to the higher revenues from its retail and office segment while Suntec Singapore’s revenue contribution was due to both its convention and retail segment. Suntec Singapore’s convention revenue increased by 254.3% y-o-y mainly due to higher revenue from corporate events, conferences and long-term licenses.

Property expenses increased by 7.8% y-o-y to $111.5 million.

Net property income (NPI) increased by 24.0% y-o-y to $315.8 million, attributable to the same reasons that led to the higher gross revenue.

Other income fell by 45.5% y-o-y to $8.1 million due to lower income support claimed during the period.

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Share of profit of JVs increased by 40.8% y-o-y to $144.9 million. This was mainly due to share of revaluation gain from investment properties held by JVs, the absence of a performance fee paid to a fund manager for 9 Penang Road in FY2021, as well as lower provision for bad debts at Nova Properties. The increase was partially offset by higher interest expense at One Raffles Quay and Southgate Complex and higher property expenses at One Raffles Quay and the REIT’s properties at Marina Bay Financial Centre.

As at Dec 31, 2022, Suntec REIT’s portfolio committed occupancy stood at 98.3% for its office portfolio and 97.5% for its retail portfolio.

Portfolio weighted average lease expiry (WALE) stood at 4.5 years for its office portfolio and 2.4 years for its retail portfolio.

The REIT’s net asset value (NAV) as at Dec 31, 2022, stood at $2.119.

Cash and cash equivalents as at Dec 31, 2022, stood at $269.6 million.

“We are pleased to have achieved stronger operating performance across our portfolio despite a higher cost and interest rate environment,” says Chong Kee Hiong, CEO of the manager.

“While we have increased our fixed interest rate borrowings and foreign currency income hedge, the expected continued rising interest rates, weaker exchange rates and higher energy costs are expected to erode operational gains and impact our distribution significantly in the near term. We are also actively looking at the potential divestment of our mature assets to strengthen our balance sheet,” he adds.

Outlook

Looking ahead, the REIT manager sees a potentially slower pace of demand for office spaces on the back of the cautious economic outlook. That said, its rent reversion for its Singapore office portfolio is expected to remain positive. Its revenue is also expected to strengthen on the back of past quarters of positive rent reversion.

For Suntec City Mall, the REIT manager expects its revenue to improve on the back of higher occupancy, rent and revenue from marketing communications (marcoms). The rebound of meetings, incentives conventions and exhibitions (MICE) events and the return of tourists will also help boost tenant sales and mall traffic. Tenant sales, however, is expected to slow down in 2023.

Suntec Convention is also expected to recover due to a strong pipeline of international MICE events and the return of larger-scale consumer and corporate events. The easing of China’s borders will also contribute to the positive outlook.

In Australia, the REIT manager is anticipating a slight increase in the country’s CBD office vacancy due to an increase in new supply. Prime rents in Melbourne and Sydney are expected to improve as the flight to quality trend continues. Australia Portfolio rent reversion is expected to be positive but revenue will be impacted by leasing downtime and incentives.

In the UK, the REIT manager is expecting to see a slow take up rate for its offices on the back of a weak economic outlook. That said, it sees revenue for its UK office portfolio remaining “resilient”, underpinned by high portfolio occupancy and a long WALE with minimal lease expiry until 2028.

Units in Suntec REIT closed flat at $1.37 on Jan 19.

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