Suntec REIT's NPI down 7.4% to $114.56m in H1

Sinking fund contribution for Suntec City Office’s upgrades worth $8m hit earnings.

Suntec Real Estate Investment Trust’s (REIT) net property income (NPI) slipped 7.4% YoY to $114.56m in H1 2019 from $123.71m, an announcement revealed. Its gross revenue for the period also slipped 1.7% YoY from $181.24m to $178.07m.

Distributable income for H1 dipped 0.2% YoY to $130.51m from $130.82m in 2018, whilst distribution per unit dropped 2.3% YoY from $0.04907 to $0.04795.

Also read: Suntec REIT NPI dipped 7.6% to $58.1m in Q1

In Q2, the firm’s NPI fell 7.2% YoY to $56.36m from $60.72m, whilst revenue declined 2.3% YoY from $90.52m to $88.4m. Distributable income edged down 1.3% YoY to $65.16m whilst DPU dropped 4.6% YoY to $0.02361.

Suntec REIT blamed its dismal H1 NPI performance to the sinking fund contribution for Suntec City office upgrading works amounting to $8m, as well as lower NPI from Suntec Singapore which amounted to $5.1m. Revenue was also dragged by lower earnings from Suntec Singapore by $5.9m and 177 Pacific Highway by $600,000 due to the weakened AUD.

As at 30 June, the overall committed occupancy for the Singapore office portfolio stood at 98.9%, and is expected to continue performing well due to the positive rent reversions in earlier quarters.

Upgrading works for Suntec City Office Towers are ongoing and will fully complete in 2021. For projects under development in Singapore, 9 Penang Road is on track to complete construction works by Q4 2019. The office component has been 100% pre-leased to UBS and leasing for 15,000 sqft of retail net lettable area (NLA) is ongoing.

For Australia, the overall committed occupancy for the office portfolio improved to 99.8% as at June 2019 driven by higher occupancy in Southgate Complex. Underpinned by the strong performance of the Sydney and Melbourne office markets and an improving Adelaide office market, the occupancy and rental levels for the Australian assets are expected to remain high for Suntec REIT’s Australia office portfolio.

Construction works for Olderfleet, 477 Collins in Melbourne is on schedule to complete in mid 2020. Including the heads of agreement signed, the pre-committed occupancy for the development had increased to 90.9% to-date. Following the completion of the existing projects under development and including the new acquisitions, approximately 17% of Suntec REIT’s assets and approximately 23% of the income contribution will be from Australia.

Also read: Suntec REIT issued 111.11 million new units at $1.80 apiece

In July 2019, ARA Trust Management announced the acquisitions of 100% interests in 21 Harris Street, Pyrmont, Sydney for $282m (A$297m) and 55 Currie Street, Adelaide for $140.81m (A$148.3m).

According to Chong Kee Hiong, CEO of ARA Trust Management, the acquisitions will improve earnings and distributions to unitholders with initial NPI yields of 5.5% for 21 Harris Street and 8% for 55 Currie Street. Unitholders will also enjoy income stability with growth through the long lease terms and annual rental escalations ranging from 3% to 4%.