Suntec REIT: Lower Dividends But Potential Growth Ahead
Key Highlights:
3Q19 distribution per unit fell 5.1% to 2.365ยข
The office segment remains as the key driver for income growth
1. Distributable Income
Net property income grew 3.2% to $ 58.4m, mainly came from Suntec City's retail and office segment. The distributable income was down by 0.4%. It was supported by a contribution from one-off compensation JV income as well as better performance of MBFC, One Raffles Quay and Southgate Complex. However, the increase in income was eroded by lower capital top-up of from Park Mall divestment. The REIT is currently trading at a 5.1% dividend yield
2. Occupancy and Rental Reversion
The occupancy rate for office and retail went down slightly to 98.6% and 97.8% respectively. However, the rental reversion was strong. The office segment achieved a committed monthly rent of $9.50-11 per square feet against average expiring rents of $8.52. While the retail segment has gained 4.4% positive reversion year-till-date.
3. Growth catalyst
Moving forward, Suntec REIT's portfolio continues to enjoy potential growth:
The rent recovery of the office segment in Singapore
The tight office supply in Melbourne will help to maintain its occupancy rate and stabilise its property income
The redevelopment of former Park Mall is on track to be completed by the end of this year. The office section has secured 100% pre-leased to UBS, while retail component's negotiations are in progress
In Melbourne, the construction works for Olderfleet is completing in mid-2020, which has already secured a 92% occupancy rate
Summary
With the growth catalyst in the near future, we would potentially see higher distribution in Q2 or Q3 next year. Suntec REIT remains as a key constituent in our REIT portfolio.