Suntec REIT delivered yet another set of stable results in FY 2018. The distributable income of S$266.8 million was 1.4% higher year-on-year. The distribution per unit ("DPU") of 9.988 cents was marginally lower than 2017’s DPU of 10.005 cents due to the enlarged unit base. During the year, we increased our interest in Southgate Complex, Melbourne from 25.0% to 50.0%. As at end 2018, our assets under management ("AUM") stood at S$9.9 billion with our Australian assets constituting approximately 10.5% of the total AUM. In 2018, Suntec REIT raised S$1.2 billion to refinance loans, pay for the increased stake in Southgate Complex as well as for progressive payments for Olderfleet, 477 Collins Street in Melbourne.
The distributable income of S$266.8 million was S$3.8 million higher year-on-year. This was due to the higher contribution from our increased interest in Southgate Complex, better performance from Suntec City Mall and Suntec Singapore, and higher capital distribution of S$39.0 million. This improved contribution was offset by higher financing costs and lower income from Suntec City Office as there was some transitory downtime as replacement leases were being secured.
The office and retail portfolios continued to perform well in 2018 with occupancies of 98.7% and 99.1% respectively as at 31 December 2018.
Our strategy of active asset management has enabled us to maintain our Singapore office portfolio occupancy at a rate above market, with the committed occupancy of our Singapore office portfolio at 98.5% as compared to the overall CBD Grade A occupancy of 92.9% as at 31 December 2018.
In Australia, the committed occupancy for our office portfolio improved to 99.4% as at 31 December 2018. As a result of our proactive lease management, lease expiries for 2019 were reduced to 8.2% of net lettable area.
On the retail front, the repositioning of Suntec City Mall, with its strengthened tenant mix and enhanced retail experience, has entrenched Suntec City in the minds of many shoppers. In 2018, Suntec City’s footfall increased by 4.8% to 47.0 million and tenants’ sales registered a 5.2% increase from 2017.
Suntec REIT remains focused on prudent and proactive capital management. Our balance sheet remains healthy with an aggregate leverage ratio of 38.1%, well within the regulatory limit of 45.0%. As at 31 December 2018, the financing cost for FY 2018 was 2.82% per annum with approximately 75.0% of the debt fixed or hedged, and with a weighted average debt maturity of 3.2 years. In 2018, Suntec REIT secured S$1.2 billion in financing. This reduced our re-financing needs for 2019 to S$430.0 million or approximately 12.0% of our total borrowings.
Sustainability continues to be an important aspect of Suntec REIT’s long term business strategy as this guides the engagement with our stakeholders and is one of the considerations in our business decisions. More information can be found in our second sustainability report which will be released separately in May 2019.
The Singapore economy is expected to grow modestly in 2019, with the Ministry of Trade and Industry estimating Gross Domestic Product ("GDP") growth to be between 1.5% to 3.5%.
The performance of our Singapore office portfolio should improve in 2019 as we enjoy the benefit of the higher rents signed in 2018 and continue to capitalise on the office market "upcycle" given the limited supply coming on-stream.
To enhance the resilience of our office portfolio, we have embarked on upgrading works for Suntec City Office to ensure that we continue to cater to the evolving needs of our tenants. Refurbishment works will progressively take place on the five office towers and will be fully completed by end 2021. Tenants can look forward to an enhanced sense of arrival at the upgraded lift lobbies, new lift interior finishes, a state-of-the art visitor management system and new washrooms.
Suntec City Mall is poised to continue to perform well in 2019 as we continue to strengthen Suntec City’s ecosystem and deliver greater value to our shoppers, tenants and convention visitors.
In Australia, the Reserve Bank of Australia expects GDP growth of around 3.0% in 2019. The office markets in Sydney and Melbourne are expected to continue their upward trend, driven by occupier demand and limited supply.
Construction works for 9 Penang Road and Olderfleet, 477 Collins Street are progressing well and we look forward to unveiling the new developments at the end of 2019 and mid 2020 respectively.
We will continue to harness our strengths to proactively manage our assets, embark on asset enhancement initiatives and expand our AUM. Together with prudent capital management, we aim to deliver on our commitment to create and deliver value to our unitholders.
On behalf of the Manager and the Board, I would like to express my sincere appreciation to Mr Chan Kong Leong, who left the company at end 2018 for his invaluable contribution to Suntec REIT. Under his leadership as Chief Executive Officer, Kong Leong significantly strengthened the performance of both the retail and office businesses and I wish him success in his future endeavours. I would like to welcome Mr Chong Kee Hiong. I am confident that with his experience in the real estate sector, Kee Hiong will lead Suntec REIT into our next phase of growth.
We are also pleased to welcome Mr Lock Wai Han who recently joined the Board as an Independent Non- Executive Director. His vast and varied experience will complement and strengthen the Board.
CHEW GEK KHIM
Chairman and Non-Executive Director
15 March 2019