Suntec REIT FY19 Distribution Per Unit Fell 4.8%

It has almost been 2 years since I divested Suntec REIT. Recently, I visited Suntec City mall and I decided to take a look how Suntec REIT is performing over the 2 years. In the latest 4Q2019 financial results, gross revenue increased by 3.5% to S$96.7 million as compared with 4Q2018. The improve in revenue was due to contributions from 55 Currie Street (acquired in September 2019) as well as increase in retail and office revenue from Suntec City which was partially offset by lower revenue from Suntec Convention.

The below bar chart shows the improvement in gross revenue broken down by the assets under Suntec REIT. The lower revenue contribution from 177 Pacific Highway was due to weakened Australian Dollar (AUD).

4Q2019 Financial Results

4Q2019
(S$’000)
4Q2018
(S$’000)
YoY(%)
Gross Revenue 96,718 93,453 3.5%
Net Property Income 63,269 60,726 4.2%
Distributable Amount 65,986 69,459 (5.0)%
Distribution Per Unit (“DPU”) (cents) 2.347 2.590 (9.4)%

FY2019 Financial Results

FY2019
(S$’000)
FY2018
(S$’000)
YoY(%)
Gross Revenue 366,730 363,504 0.9%
Net Property Income 236,187 240,977 (2.0)%
Distributable Amount 262,730 266,811 (1.5)%
Distribution Per Unit (“DPU”) (cents) 9.507 9.988 (4.8)%

Occupancy

The overall committed occupancy for Singapore office portfolio stood at 99.1% while its Australia office portfolio stood at 97.8%

The occupancy for the retail mall stood at 99.6% as of 31st December 2019.

Debt

The gearing ratio stood at 37.7% and weighted average debt maturity stood at 3.06 years. My personal opinion is that there is still room for further acquistions since the maximum gearing allowed is 45%.

Current Dividend Yield

I am using 5 years chart so we know how far the current share price has fallen. The current share price is not super attractive but at a reasonable range. Given the full year distribution of 9.507 cents pay out in FY19, this translate to a current dividend yield of 5.25% which is reasonable (Based of my criteria for a least 5% yield).

You might probably be worried given that shopper traffic at retail malls are affected by the COVID-19 virus. Income contribution from Retail segment only makes up 27% of its total income contribution.

 

The bulk of income comes from the office segment. The passing rent for Suntec City has picked up over the past few quarters and office segment are less likely to be impacted by the COVID-19 virus situation (at least for now).

 

OUE Commercial REIT 4Q2019 Financial Results After Merger

The merger between OUE Commercial REIT and OUE Hospitality Trust seems to be beneficial. On 30th January 2020, OUE Commercial REIT announced its first financial results (4Q2019) after the merger with OUE Hospitality Trust.

Gross Revenue improved 80.7% to S$86.8 million and Net Property Income (“NPI”) increased by 92.6% to S$70.6 million. These are good financial figures that can never be achieved by OUE Hospitality Trust alone.

Higher net property income and the drawdown of OUE Downtown Office’s income support was partially offset by higher interest expenses in 4Q 2019 from higher borrowings which resulted in amount available for distribution of S$46.6 million.

As S$1.1 million was retained by the manager for working capital purposes, S$45.1 million was available for distribution. This translates to a Distribution Per Unit (“DPU”) of S$0.84 cents which was 12% higher compared to 4Q2018.

4Q2019 Financial Results

4Q2019
(S$’mil)
4Q2018
(S$’mil)
Change
Gross Revenue 86.8 48.0 80.7%
Net Property Income 70.6 36.6 92.6%
Amount available for Distribution 46.6 21.5 116.9%
Amount to be Distributed (After Retention) 45.1 21.5 109.9%
Distribution Per Unit (“DPU”) (cents) 0.84 0.75 12.0%

FY2019 Financial Results

FY2019
(S$’mil)
FY2018
(S$’mil)
Change
Gross Revenue 257.3 176.4 45.9%
Net Property Income 205.0 138.2 48.3%
Amount available for Distribution 124.7 71.3 74.9%
Amount to be Distributed (After Retention) 123.2 71.3 72.8%
Distribution Per Unit (“DPU”) (cents) 3.31 3.48 (4.9)%

While the 4Q2019 financial results were all positive, the full year financial results was not. The full year distribution per unit was 4.9% lower at 3.31 cents as compared to 3.48 cents in FY2018.

Debt

Gearing ratio stood at 40.3% which was high in my opinion.

Occupancy

The commercial portfolio occupancy stood healthy at 95.2% as of 31 December 2019.

Average Passing Rent

As you can see below, the average passing office rent for all three Singapore office properties improved as at 4Q 2019 due to consecutive quarters of positive rental reversions. On the other hand, the passing rent for Lippo Plaza (Shanghai) and Mandarin Gallery continues to be depressed.

RevPar

RevPAR improved by 1.9% to S$216 on the back of higher room rates and stronger demand at Crowne Plaza Changi Airport. This was supported by increased tourist arrivals and strong line-up of major events during the quarter on the back of a benign supply environment.

Crowne Plaza Changi Airport continued to improve its operating performance and achieved a 9.9% increase in RevPAR of S$198 for 4Q 2019, on the back of higher room rates and increased demand from the corporate and wholesale segments.

Mandarin Orchard Singapore maintained a relatively stable operating performance on the stronger demand amidst a competitive trading environment and achieved a RevPAR of S$226 for 4Q2019.

Summary

While OUE Commercial REIT has released a good set of financial results after its merger, I believe most investors are worried about the impact of the Wuhan virus on OUE Commercial REIT as we all know that Singapore tourism is being hit as there are significantly less China tourists. In 2019 alone, China tourists makes up 22% of tourists arrival in Singapore. We can imagine the impact on the hospitality sector.

I would say the merger came at the right time. As you can see below, 69% of the revenue comes from the commercial segment while 31% makes up the hospitality segment. Of course there will be some form of impact to the overall revenue but the commercial segment can help to offset the lower revenue from the hospitality segment.

Even though RevPar has improved in 4Q2019, I will expect RevPar to be lower in upcoming quarters due to the impact of the Wuhan (2019-nCoV) virus on tourism.

Currently, OUE Commercial REIT only makes up 3% of my entire stock portfolio. Thus, I shall keep calm and collect dividends.

Summary of January 2020 Transactions

We started the first month of the year 2020 with the Wuhan Virus. With the recent outbreak, many stocks have been sold down due to investors panic. Two REITs that I have noticed with properties in China are CapitaLand Retail China Trust and Sasseur REIT. (Read more: CapitaLand Retail China Trust and Sasseur REIT Closes Malls Due to Wuhan Virus)

I have not found any good picks yet. In fact, I am looking at Frasers Commercial Trust but the stock price has not yet came down to a satisfactory level that I will add more of it to my stock portfolio. In times like this, I think investors with a ready war chest will grab the opportunity to buy quality good stocks are cheaper prices.

I continue to purchase Singapore Savings Bonds even though the interest rate has came down. One of my goal for 2020 is to purchase 8K worth of Singapore Savings Bonds.

I have started my fitness routine however this was disrupted by a sudden flu followed by high fever earlier this month. I am glad I recovered before Chinese New Year. In the month of January, I managed to stretch myself to run a total of 40.49km. This is slightly more than my target of 25KM per month.

With the outbreak of Wuhan virus, Health is also Wealth. Don’t you agree?