UPDATE: Suntec REIT 3Q18 net property income fell more than 11 percent, hit by weaker Aussie dollar

An entrance to Suntec City mall; taken October 2018.An entrance to Suntec City mall.

Suntec REIT reported on Wednesday that its third-quarter net property income fell 11.4 percent on-year to S$56.5 million, hurt by a weaker Australian dollar and a sinking fund cost for office upgrading works at Suntec City’s office segment.

The 177 Pacific Highway property saw revenue fall 22.2 percent to S$9.5 million in the quarter, due to the weaker Australian dollar, Suntec REIT’s manager, ARA Trust Management (Suntec), said in a filing to SGX before the market open on Wednesday.

Excluding the sinking fund contribution, net property income for the quarter would have been 3.9 percent lower on-year, it said.

Gross revenue fell 2.5 percent on-year in the quarter to S$88.81 million, as lower revenue from 177 Pacific Highway was partly offset by Suntec Singapore seeing a 1.9 percent, or S$400,000, rise in revenue to S$21.1 million, the REIT manager said.

Suntec City’s gross revenue was flat on-year as a 5.9 percent increase in retail revenue to S$25.9 million was offset by office revenue falling 4.3 percent to S$32.3 million, the REIT manager said.

Property expenses for the quarter rose 18.3 percent on-year to S$32.27 million, due to the sinking fund contribution to upgrade the common area for all Suntec Office towers and due to expenditure for more convention events in the quarter, it said.

Distributable income rose 1.0 percent to S$66.53 million, and the distribution per unit (DPU) for the third quarter was 2.491 Singapore cents, up 0.3 percent on-year from 2.483 Singapore cents in the year-ago quarter, it said. That included a capital distribution of S$10.0 million, or 0.374 Singapore cents a unit, it said.

For the Singapore office portfolio, Suntec City Office’s committed occupancy was 99.6 percent, while One Raffles Quay and Marina Bay Financial Centre were at 96.1 percent and 100 percent respectively, the filing said. For the Singapore retail portfolio, all of Suntec City was at 98.5 percent committed occupancy, while Marina Bay Link Mall was at 100 percent, it said.

“Suntec City continued to see a healthy take up of office spaces last quarter with demand coming from the technology, media and telecommunications sector and energy & natural resources sector,” Chan Kong Leong, CEO of ARA Trust Management (Suntec), said in the statement.

“The repositioning of Suntec City office to realize its intrinsic potential is in progress. Works will commence in the fourth quarter of 2018 and complete progressively over the next three years. Office tenants can look forward to an enhanced experience with refreshed lobbies, washrooms and visitor management system,” Chan said.

He also noted that SuperPark, an indoor activity park from Finland, will open its first Southeast Asian outlet in Suntec City, with around 40,000 square feet of activity space. That was after U.S. sportswear retailer Foot Locker opened its first downtown store, and State Swim, an Australian swimming-school, was set to begin offering classes at Suntec City, he said.

For the Australian office properties, 177 Pacific Highway’s occupancy remained 100 percent, while Southgate Complex improved to 96.8 percent as of 30 September, it said. The Southgate Complex retail component occupancy was at 90.0 percent, it said.

For the nine-month period, net property income rose 1.2 percent on-year to S$270.05 million, while net property income fell 2.6 percent on-year to S$180.25 million, it said. The DPU for the nine-month period was 7.398 Singapore cents, compared with 7.401 Singapore cents in the year-earlier nine-month period, it said.

Outlook

Suntec REIT’s manager said the Singapore office market continued to improve in the third quarter, with overall central business district (CBD) rents growing by 2.3 percent, according to JLL data.

“The manager will continue its proactive asset management to strengthen the office proposition and maintain a high occupancy level for its Singapore portfolio,” it said.

For the retail segment, demand remained “firm,” mainly from food and beverage and DIY activity retailers, it said.

In Australia, national office CBD occupancy rose by 0.5 percent to 90.6 percent in the second quarter of the year, it said, citing JLL data, adding it expected occupancy and rental levels to remain high amid strong demand and limited new supply.

Suntec REIT’s Singapore portfolio comprises Suntec City, which is an integrated commercial development including a shopping mall, a 60.8 percent interest in Suntec Singapore Convention & Exhibition Centre, a one-third interest in One Raffles Quay, a one-third interest in Marina Bay Financial Centre Towers 1 and 2 and Marina Bay Link Mall, and a 30 percent interest in 9 Penang Road.

In Australia, Suntec REIT  holds 100 percent of 177 Pacific Highway in Sydney, a 50 percent interest in Southgate Complex in Melbourne and a 50 percent interest in a commercial building under development at Olderfleet 477 Collins Street in Melbourne.

Convertible bonds

In a separate filing, ARA Trust Management (Suntec) said the DPU resulted in an excess distribution of S$0.014 per unit under the conditions of its S$300 million 1.75 percent coupon convertible bonds due 2021.

That resulted in an adjustement to the conversion price to S$2.04 from the current S$2.061, effective 28 November, it said.

Units of Suntec were at S$1.81 at 10:02 A.M. SGT.

This article was originally published on Wednesday 24 October 2018 at 8:06 A.M. SGT; it has since been updated.  

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