Suntec REIT T82U has reported a distribution per unit (DPU) of 1.737 cents in the 1QFY2023 ended March 31, 27.4% lower y-o-y.
The REIT’s distributable income for the quarter fell by 26.8% y-o-y to $50.3 million.
The lower DPU and distributable income came amid an improvement in operations across the office, retail and convention properties but was eroded by higher financing costs as well as the weaker Australian dollar (AUD) and British pound sterling (GBP) against the Singapore dollar (SGD).
DPU from operations fell by 29.8% y-o-y to 1.538 cents while distributable income from operations fell by 29.3% y-o-y to $44.5 million.
DPU from capital stood at 0.199 cents while capital distribution stood at $5.8 million during the quarter.
During the 1QFY2023, Suntec REIT’s gross revenue rose by 9.6% y-o-y to $108.7 million. Net property income (NPI) was up by 2.7% y-o-y to $76.3 million.
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The higher gross revenue and NPI was due to higher contributions from Suntec City Office, Suntec City Mall and Suntec Convention and offset by the weaker AUD and GBP against the SGD.
Joint venture (JV) income fell by 26.2% y-o-y to $22.8 million as stable operating performance at its Marina Bay Financial Centre (MBFC) properties were offset by higher interest expenses. The higher revenue was also offset by higher bad debt provision on change in accounting policy at Nova Properties, London. The lower JV income also saw lower contributions from Southgate Complex, Melbourne, due to higher interest expense, offset by lower rent reliefs for Southgate retail tenants as well as a weaker AUD and GBP against the SGD.
As at March 31, the REIT’s occupancy for its office portfolio stood at 98.6% with a weighted average lease to expiry (WALE) of 4.5 years. Its retail portfolio had an occupancy rate of 97.6% with a WALE of 2.3 years.
As at March 31, the REIT’s net asset value (NAV) per unit stood at $2.09, down from the NAV per unit of $2.12 as at Dec 31, 2022.
Its aggregate leverage ratio stood at 42.8%, up by 0.4 percentage points q-o-q. Its adjusted interest coverage ratio stood at 2.2x. Of its total debt, 72% are on fixed rate borrowings.
Looking ahead, the REIT is expecting to see a slow down in its Singapore office portfolio amid softening demand on the back of global macroeconomic uncertainties and volatile financial markets. That said, rent reversion for the portfolio is expected to remain positive and revenue is likely to strengthen on the back of past nineteen quarters of positive rent reversions.
Suntec City Mall is expected to see slower retail sales amid weaker GDP growth in Singapore. That said, the continued recovery of meetings, incentives, conventions and exhibitions (MICE) events and the return of tourists will help boost tenant sales and mall traffic. Revenue from Suntec City Mall is expected to improve, underpinned by higher occupancy, rent and marcoms revenue.
Suntec Convention is expected to see a recovery driven by a strong pipeline of international MICE events, and buoyed by domestic consumer and corporate events.
In Australia, the REIT expects revenue to be impacted by leasing downtime and incentives despite positive rent reversions. Office vacancies in the central business district (CBD) are also expected to remain elevated due to an increase in new supply.
In the UK, the REIT expects economic challenges to continue to impact its office portfolio with leasing demand slowing down in the market. That said, the REIT says revenue for the UK office portfolio is expected to remain resilient, underpinned by high portfolio occupancy and long weighted average lease expiry with minimal lease expiry until 2028.
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“Looking forward, our operating performance is expected to continue to improve but interest rate and energy cost are likely to remain high which will impact our distribution for the year. To cushion the impact, we will continue with the distribution of the remaining capital top up for 2023 to provide some support to unitholders in these tough times. We are also actively looking at the potential divestment of our mature assets so as to unlock value and improve our balance sheet,” says Chong Kee Hiong, CEO of the manager.
Unitholders will receive their DPUs on May 30.
Units in Suntec REIT closed 1 cent lower or 0.69% down at $1.43 on April 15.
