- 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.
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Suntec REIT's 2H22 results below our expectations.
- 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.
