Suntec REIT reported a strong operational performance in Singapore and resilient contributions from the UK. Suntec Convention turned around to provide NPI of S$8.4m in 2H22. DPU from operations declined 17.9% y-o-y due to higher interest rates, weakness of the AUD, and a higher proportion of management fees paid in cash.
Suntec REIT (SGX:T82U) reported DPU of 4.074 cents for 2H22 (-9.7% y-o-y), which is below our expectations. The results included capital distribution of S$11.5m or 0.4 cents per unit. See Suntec REIT's dividend dates.
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The Singapore office portfolio has registered 18 consecutive quarters of positive rental reversion. NPI from Suntec City Office increased 7.0% y-o-y while JV income from ORQ and Marina Bay Financial Centre (MBFC) properties grew 1.4% y-o-y.
Third consecutive quarter of positive reversion at Suntec City Mall. Occupancy at Suntec City Mall improved 1.6ppt q-o-q to 98.3% in 4Q22. Rental reversion has picked up to 9.9%, driven by new and renewal leases.
Suntec REIT introduced 57 new-to-market/new-to-Suntec brands. Tenant sales surpassed pre-pandemic levels by 17% in Dec 22. NPI from Suntec City Mall increased 38.8% y-o-y.
Suntec Convention: Recovery gaining momentum. Revenue increased three folds y-o-y, driven by corporate events and conferences. NPI surged to S$8.4m for 2H22. Notable MICE events included Comex, Anime Festival Asia and Bookfest@Singapore. Recovery will be further supported by a strong pipeline of international MICE events in 2023.
Management expects positive impact from easing of travel restrictions and the return of Chinese tourists in 2H23.
United Kingdom: Resilient performance despite weaker GBP. NPI from Minster Building increased 3.5% due to full contribbution after the acquisition was completed on 28 Jul 21. NPI Properties dropped 5.8% y-o-y due to the weaker GBP.
Contributions from Australia hit by weak AUD. NPI from Australia dropped 12.1% y-o-y due to leasing downtime (transitory vacancy at 177 Pacific Highway) and an absence of the surrender fee that was received in 2H21. The Australian dollar depreciated 7% y-o-y as of Dec 22.
Management plans to invest S$20m on asset enhancement initiatives to spruce up 177 Pacific Highway, Southgate Complex and 55 Currie Street.
Hurt by higher interest rates. Interest expense increased 43% y-o-y in 2H22. We estimated that all-in financing cost increased 0.3ppt q-o-q to 3.6% in 4Q22. Suntec REIT has increased the proportion of borrowings on fixed rates from 58% to 66%.
Working on divestments. Aggregate leverage remains elevated at 42.4%. Management is looking at the potential divestment of its mature properties to strengthen its balance sheet. Suntec REIT could deleverage by divesting strata titles in Suntec City Office.
The REIT manager has elected to receive 50% of asset management fees in units in 2022, compared with 80% previously in 2021. The change reduces distributable income.
Office leasing market has decelerated.
Read more at SGinvestors.io.
Above is an excerpt from a report by UOB Kay Hian Research. Clients of UOB Kay Hian may be the first to access the full PDF report @ https://www.utrade.com.sg/.
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