The manager of Suntec REIT has reported a distribution per unit (DPU) of 3.476 cents for the 1HFY2023 ended June 30, 27.7% lower than the DPU of 4.81 cents in the corresponding period the year before.
DPU from operations fell by 30.2% y-o-y to 3.078 cents in the 1HFY2023.
Distributable income fell by 27.2% y-o-y to $100.5 million.
Though the REIT registered an improvement in its operational performance for its office, retail and convention properties, the drop in DPU and distributable income for the six-month period was due to higher financing costs and the weaker Australian dollar (AUD) and Pound Sterling against the Singapore dollar (SGD).
Gross revenue for the 1HFY2023 rose by 10.2% y-o-y to $224.3 million due to higher revenue from Suntec City, Suntec Singapore and The Minster Building in the UK. These were offset by lower revenue from 177 Pacific Highway, 21 Harris Street, 55 Currie Street and Olderfleet, 477 Collins Street due to impact of the weaker Australian Dollar
Meanwhile, net property income (NPI) climbed only by 0.3% y-o-y to $153.3 million as property expenses surged by 40.2% y-o-y to $71.0 million during the period.
Other income fell by 42.0% y-o-y to $2.4 million while share of profit of joint ventures fell by 64.2% y-o-y to $37.3 million.
As at June 30, the REIT’s office portfolio had an occupancy rate of 98.6% while its retail portfolio had an occupancy rate of 97.5%. Portfolio weighted average lease expiry (WALE) for both the office and retail portfolios stood at 4.3 and 2.2 years respectively.
As at the same period, the REIT’s aggregate leverage ratio increased by 0.2 percentage points q-o-q to 42.6%. Adjusted interest coverage ratio (ICR) fell by 0.3x q-o-q to 2.1x.
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The REIT’s fixed rate borrowings also fell by 8 percentage points q-o-q to 58%.
As at June 30, cash and cash equivalents stood at $214.4 million.
Looking ahead, office demand in Singapore is likely to be muted with rents likely to plateau. However, the REIT manager is still expecting to see positive rent reversion and stronger revenue on the back of positive rent reversions from the past 20 straight quarters.
Revenue from Suntec City Mall is also expected to see improvement on the back of high occupancy, rent and revenue from marketing and communications. Overall tenant sales are also likely to remain above pre-Covid levels despite slowing growth in retail sales.
The return of international headline events as well as the easing of China’s travel restrictions is expected to have a positive impact on Suntec Convention. According to the REIT manager, the convention’s income contribution will remain impacted in 2023 with a full recovery expected in 2024.
In Australia, leasing momentum is likely to slow down amid macroeconomic uncertainties. Slowing demand and onstream supply is expected to see higher vacancies in the Sydney and Melbourne CBDs while significant new supply is also expected to increase vacancies in Adelaide’s office market.
Meanwhile, revenue for the UK office portfolio is expected to remain resilient, underpinned by high portfolio occupancy and long weighted average lease expiry.
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“Interest rates and energy costs are likely to remain high which will impact our distributable income for the rest of the year. We continue to explore potential divestment of our mature assets and strata office units at Suntec City to unlock value and strengthen our balance sheet,” says Chong Kee Hiong, CEO of the manager.
Unitholders will receive their distributions on Aug 29.
As at 9.34am, units in Suntec REIT are trading flat at $1.32.
