AS the S-Reit sector faces challenges brought about by higher interest rates, the focus for this earnings season will continue to be on interest expenses, distributions, as well as the ability of Reit managers to conduct effective capital and asset management.

Six S-Reits released business updates or financial results for periods ended Dec 31, 2023 during the week of Jan 22. Among them, three reported full year financials – Keppel DC Reit : AJBU 0% (KDCReit), Sabana Industrial Reit : M1GU 0% (Sabana Reit) and Suntec Reit : T82U 0%.

Sabana Reit’s FY2023 gross revenue grew 17.9 per cent year on year to S$111.9 million while Suntec Reit’s FY2023 gross revenue increased by 8.3 per cent compared to a year earlier to S$462.7 million. KDCReit saw a slight increase in FY2023 gross revenue of S$281 million, 1.4 per cent higher than FY2022.

Despite all three S-Reits reporting year-on-year increases in gross revenues, only Sabana Reit saw a year-on-year growth in net property income (NPI). The Reit’s FY2023 NPI grew 3.2 per cent year on year to S$55.0 million. On the other hand, Suntec Reit and KDCReit saw 0.8 per cent and 3.0 per cent year-on-year declines in NPI respectively.

While this was contributed by various factors across the S-Reits, higher costs – including maintenance and utility expenses as well as finance expenses – were common reasons cited. KDCReit’s average cost of debt for FY2023 increased 10 basis points to 3.3 per cent.

Sabana’s weighted average all-in financing cost inched higher to 3.89 per cent as at Dec 31, 2023 from 3.86 per cent a year earlier. Suntec Reit’s all-in financing cost increased to 3.84 per cent as at Dec 31, 2023 from 2.94 per cent the year before.

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As a result, FY2023 distributable income (DI) fell across all three S-Reits. Sabana Reit, KDCReit and Suntec Reit saw year-on-year declines in DI at 7.7 per cent, 9.3 per cent and 19.1 per cent respectively. This extended to lower distribution per unit (DPU) for the Reits as well, with Sabana Reit, KDCReit and Suntec Reit’s FY2023 DPU declining 9.5 per cent, 8.1 per cent and 19.7 per cent respectively.

On the capital management front, the respective aggregate leverage for Sabana Reit, KDCReit and Suntec Reit were 34.3 per cent, 37.4 per cent and 42.3 per cent, all below regulatory limit.

KDCReit noted that portfolio asset valuation was stable year on year, with assets under management (AUM) at S$3.7 billion. Looking ahead, KDCReit believes that the rapid growth of artificial intelligence along with other modern technologies is expected to underpin continued strong data-centre demand.

Sabana Reit recorded higher portfolio valuation of S$903.9 million as at Dec 31, 2023, compared to S$885.7 million a year earlier. It attributed the valuation uplift to asset enhancement, asset rejuvenation and higher signing rents for both new and renewed leases across the portfolio.

Suntec Reit, focused on asset rejuvenation, divested S$94.4 million of strata units at Suntec City Office Towers during the year. The proceeds were used to pare down debts and to maintain healthy leverage.

The Reit noted that it will continue to focus on divestment of mature assets and strata units at Suntec City Office to deliver accretive earnings, lower gearing and deliver long-term value to unitholders. SGX RESEARCH

The writer is a research analyst at SGX. For more research and information on Singapore’s Reit sector, visit sgx.com/research-education/sectors for the monthly S-Reits & Property Trusts Chartbook.

Source: SGX Research S-Reits & Property Trusts Chartbook.