7 things I learned from the 2018 Suntec REIT AGM

Suntec REIT is a Singapore-listed office and retail REIT. It currently owns/co-owns four properties in Singapore (Suntec City, One Raffles Quay, Marina Bay Financial Centre, 9 Penang Road), two properties in Melbourne (Southgate Complex, 477 Collins Street) and one property in Sydney (177 Pacific Highway). As at 31 December 2017, its property portfolio was valued at $9.4 billion.

Suntec REIT is currently on our watchlist, and I attended the annual general meeting to evaluate its past year’s performance and its plans for the year ahead.

Here are seven things I learned from the 2018 Suntec REIT AGM:

1. Gross revenue grew 7% year-on-year to $354.2 million and net property income (NPI) grew 8.9% to 244.5 million. NPI growth was mainly due to higher contributions from 177 Pacific Highway and Suntec City. Suntec City remains the REIT’s largest NPI contributor at 63%.

Source: Suntec REIT 2017 annual report

2. Distributable income grew 3.7% year-on-year to $263 million but distribution per unit (DPU) remained flat at 10.005 cents compared to 10.003 in 2016. Based on Suntec REIT’s last closing price of $1.87, its expected distribution yield is 5.4%.

3. Suntec REIT posted strong portfolio occupancy rates is for both its office (99.2%) and retail (98.8%) segments. Its largest property, Suntec City, recorded 99.5% and 99.0% occupancy rates for its office and mall segments respectively. In 2017, Suntec City mall saw 45 million people walk through its doors and the convention centre hosted over 1,600 events. Weighted average lease expiry for the overall retail and office portfolio are 2.35 years and 3.80 years respectively.

Source: Suntec REIT 2017 annual report

4. Suntec REIT’s gearing ratio, as at 31 December 2017, is 36.4%, comfortably below the regulatory limit of 45%. Average cost of debt is 2.5% p.a. and average debt to maturity 3.19 years. Net asset value per share as at 31 December 2017 is S$2.119.

5. Suntec REIT made its second acquisition in Melbourne in 2017 when it acquired a 50% interest in 477 Collins Street for A$414.17 million. Suntec REIT’s partner, Mirvac Group, owns the remaining 50% interest and will provide a five-year rental guarantee on any unlet space. The freehold property is located in Melbourne’s central business district is currently under construction and will become a 40-storey premium-grade office building when completed in mid-2020. Deloitte has already pre-committed 39% of the building’s space for its Melbourne headquarters.

6. A unitholder noted that Suntec’s REIT overall tenant retention ratio for 2017 was 64% and asked if the management had aims to increase it to 80-90%. CEO Chan Kong Leong explained that an extremely high ratio is not advisable for the retail segment as consumer tastes change rapidly and a mall has to constantly update its retail mix to remain attractive to shoppers. In the office segment, he shared that tenants with a large lease have higher bargaining power to demand lower rents. But the management has to evaluate whether it makes sense to accept a lower rent to retain the tenant. At the end of the day, it is important for the management to be guided by the fundamentals and what is best for unitholders, and not to simply reach a high tenant retention ratio.

7. Another unitholder (rather brusquely) demanded to know why the management hadn’t decided to invest in China. Chairman Chew Gek Khim calmly explained that there are various reasons to invest in any particular country. But the board has decided on Australia because it has yielded good results so far and the country boats a safe government, political stability, good quality buildings and long lease tenures among other reasons.

Liked our analysis of this AGM? Click here to view a complete list of AGMs we’ve attended »

Adam Wong is the editor-in-chief of The Fifth Person and author of the national bestseller Lucky Bastard! which made the Sunday Times Top 10 Bestseller's List in 2009 and Value Investing Made Easy which made the Kinokuniya Business Bestseller's List in 2013. In 2010, he appeared on U.S. national television on the morning show The Balancing Act. An avid investor himself, Adam shares his personal thoughts and opinions as he journals his investing journey online.

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