Monday, 16 April 2018

Takeaways from Suntec REIT AGM 2018

Suntec REIT AGM 2018

Date: 16/04/2018

Duration: 2.05 - 3.10 pm

Turnout: About 90% (At least half are whom I can call aunties and uncles despite me being an uncle myself. This is a testament to Suntec's popularity as a stable REIT among this group of investors.)

AGM started with a 20 min presentation of the REIT's results in 2017 and recent progress by Mr Chan Kong Leong, CEO and Executive Director.

Questions from the floor

Q: Regarding its overseas expansion, have Suntec consider the tax implications involved such as capital gain tax and withholding tax?

A: Suntec receive advice from experts and structure their business for the most tax efficiency. However certain taxes due to regulations, are unavoidable.

Q: The same unit holder also suggested using big data and artificial intelligence for future property acquisitions to stay ahead of the curve.

A: Suntec is currently using big data for business enhancements but not A.I. at the moment.

Q:What is the board's stance on improving tenant retention ratio to 80 - 90% as compared to the current 64%?

A: Suntec do not want that high of a ratio because they and the shoppers want something new and fresh regularly.

Suntec is guided by what they and the market wants at the end of the day.

Q: How much capital distribution is left and how will future distribution payout be affected once the capital distribution is exhausted?

A: More than $100 M is left for distribution. When this is exhausted, income from the new properties such as 9 Penang Road will comes in.

Q: Suntec's rental or occupancy (I didn't catch this properly. Apologies.) is lower than that of heartland malls. How is Suntec handling that?

A: Suntec is trying to improve the fundamentals. When the fundamentals are improved, rentals will come back. This can already be seen in the latest results.

Q: Why is Suntec not investing in China?

A: Suntec is choosing to invest in Australia because of the political stability, good returns, good quality of properties, etc.

Resolutions: All passed.

Observations

The last question in above Q&A was answered by the Chairwoman, Ms Chew Gek Khim. She only replied with the above one liner and when the questioner probed further, she just said a thank you and wanted to proceed to the next agenda.

I thought that was pretty rude and came across as insincere and impatient.

Sentiments from the floor seem to concur as the resolution to endorse the appointment of Ms Chew Gek Khim (Resolution 3) only garnered 50+% approval. In other words 40 over % voted against her.

This is the lowest I've seen in the AGMs that I've attended.

On the other hand, CEO Mr Chan answered well to the questions from the floor and he came across as being candid. I thought he did quite well.

Summary and my thoughts

In my opinion Suntec REIT remains an attractive REIT trading below its NAV.

Having office, retail and MICE elements in its portfolio, it is a good proxy to these 3 sectors for an investor wanting to invest in all three instead of either one.

Forward distribution yield should remain comfortably above 5%. Although this is not the best among REITs, I like the stability this REIT offers with its high quality assets in the CBD.

Distribution yield against my cost remains above 6%.

Another assuring factor for me is the quality of the REIT manager. I have happy memories with ARA previously when they were still listed.

Among the overseas properties, 177 Pacific Highway has a 100% committed occupancy with no lease expiring until 2023 onwards.

Most importantly there is earnings visibility coming in from the new properties namely 9 Penang Road and Olderfleet. Contributions from these two properties should be meaningful from 2020 onwards.

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