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Monday, October 26, 2020

Suntec REIT Analysis @ 26 October 2020

Basic Profile & Key Statistics

Suntec REIT (Suntec) invests in Office, Retail and Convention Centre properties. I've classified the convention centre as the Hospitality sector as its purpose is similar to event halls in hotels. Suntec owns 10 properties in Singapore and Australia.


Quarter Performance Review

Gross revenue, net property and income from JV decreased by13.4% YoY, 19% YoY and 14.7% YoY respectively. 

Distribution income from operation (exclude the partial distribution from asset disposal) decreased by 12.6% YoY. The dropped is cushioned by contributions from 3 Australia properties. Out of these, 21 Harris and 477 Collins only started to contribute income this year while 55 Currie only started to contribute since Sep 2019. DPU dropped 21.9% YoY, if we consider only DPU for operation, the drop is 13.4% YoY. 

As for the proposed acquisition of Nova Properties, the EGM is expected to be held in December and completed within the same month. Post-acquisition, gearing would be increased to beyond 45%. For more detail, please refer to my previous post on Review on Suntec REIT Proposed Acquisition of 50% Interest in Nova Properties.

Lease Profile

Committed occupancy remains high at 97.6%. WALE is short at 2.92 years where the highest lease expiry of 33.3% falls in the year 2021. Weighted average land lease expiry is slightly long at 73.07 years.

Debt Profile

Gearing is high at 41.5%. Cost of debt is low at 2.5% with a slightly high % of unsecured debt at 81.4%. Fixed rate debt % is slightly low at 74%. Interest cover ratio is low at 2.6 times. WADE is slightly long at 3.09 years where the highest debt maturity of 28.1% falls in FY2024.


Diversification Profile

79.9% of Suntec income is from Singapore properties and the remaining is from Australia properties. Top property contribution is high at 55.2%, this figure excludes Suntec Convention Centre. Top tenant and top 10 tenants contribution are low at 3.5% ad 20.3% respectively.


Key Financial Metrics

Property yield and distribution on capital are low at 2.7% and 2.1% respectively. Management fee is not competitive in which unitholders receive S$ 4.26 for every dollar paid. Distribution margin is moderate at 51%.  If we include distribution retention, the management fees over distribution, distribution on capital, and distribution will be 22.4%, 2.2%, and 53.6% respectively. 3.1% of the past 4 quarters DPU is from distribution from asset disposal. As for the rental guarantee from 21 Harris and 477 Collins, there is no information for this 3Q business update. I estimated it to be 2% of the past 4 quarters DPU, I will update it when Suntec release the 2H financial statement later.


Trends

Flat - NAV per Unit

Slight Downtrend - Distribution Margin (include retention)

Downtrend - DPU (include retention), Interest Cover Ratio, Property Yield


Relative Valuation

i) Average Dividend Yield  - Average yield at 5.39%, apply the past 4 quarters DPU of 7.488 cents will get S$ 1.39. Include retention, DPU would be 7.853 cents, which will translate into S$ 1.46.

ii) Average Price/NAV - Average value at 0.83, apply the latest NAV of S$ 2.092 will get S$ 1.74.


Author's Opinion

 Favorable Less Favorable
Diversified SectorShort WALE
High Committed OccupancyConcentrated Lease Expiry
Low Cost of DebtHigh Gearing Ratio
Well Spread Debt MaturityLow Interest Cover Ratio
Low Top Tenant & Top 10 Tenants ContributionHigh Top Geographical Contribution
 High Top Property Contribution
 Low Property Yield
 Low Capital on Distribution
 Non Competitive Management Fee
 DPU Downtrend
 Interest Cover Ratio Downtrend
 Property Yield Downtrend

As the majority of Suntec income is from the office sector, therefore it is less affected by COVID-19 situation. Suntec performance drag is from both Suntec City Mall as well Suntec Convention Centre. To mitigate the loss of revenue from international and largescale consumer events, Suntec Convention has leased out the entire Level 3 to North London Collegiate School of Singapore and launched a hybrid broadcast studio for live streaming demand. Coupled with MICE events of up to 250 attendees allowed and church services of up to 100 attendees allowed, Suntec Convention should see further improvement in the upcoming quarter. As for Suntec City Mall, with the upcoming phase 3 opening, performance is expected to be improved too. From this business update, there is still no update on 9 Penang Road status as well as when it would start its contribution. 


Suntec has not provided any capital distribution from asset disposal this year. Given the gearing to rise above 45% after the proposed acquisition of Nova Properties, very likely Suntec REIT would continue this practice. Without COVID-19, all previous acquisitions would be sufficient to cover the this capital distribution. But now with COVID-19, it would be very challenging for Suntec to maintain past year DPU without this.


For more information, you could refer to:

SREITs Dashboard - Detailed information on individual Singapore REIT

SREITs Data - Overview of Singapore REIT

REIT Analysis - List of previous REIT analysis posts

REIT-TIREMENT Patreon - Support this blog as a Patron and get SREITs Dashboard PDF

REIT Investing Community - Facebook Group where members share and discuss REIT topic


*Disclaimer: Materials in this blog are based on my research and opinion which I don't guarantee accuracy, completeness, and reliability. It should not be taken as financial advice or a statement of fact. I shall not be held liable for errors, omissions as well as loss, or damage as a result of the use of the material in this blog. Under no circumstances does the information presented on this blog represent a buy, sell, or hold recommendation on any security, please always do your own due diligence before any decision is made.

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