FY21 Results Analysis: Delivered against all odds

  • Strong FY21 results with DPU +17% y-o-y led by contributions from newly acquired / completed assets, above our estimates.
  • Key positives: i) Dec21 tenant sales exceeded that of pre-COVID levels, ii)SG office positive reversions to continue into FY22 though moderated, iii) GTO rents led to improved effective rents to c.95% of pre-COVID levels
  • Key negatives: i) retail reversions will remain at -10% levels; ii) sentiment in SG retail and AU office market remained cautious given the start-stop situation 
  • Suntec has delivered good results and is committed to not raising equity funding at heavily discounted share price. We believe Suntec will progressively ride on the reopening trend (local and tourists) in FY22 and is an attractive acquisition / privatisation target.   
  • Maintain BUY; TP of S$1.90 

Strong FY21 results led by contributions from newly completed / acquired assets and some retail recovery.  

  • 4Q21 DPU +2.2% y-o-y to 2.28 Scents, largely due to contributions from newly acquired (UK assets) and lower rental relief, partially offset by divestments 
  • FY21 DPU of 8.666 Scts (+17% y-o-y) is ahead of our FY21 estimates as we have factored in higher rental relief following the resurgence of COVID-19 pandemic and extended lockdown. 
  • 4Q21 Revenue and NPI grew 14% y-o-y and 19% y-o-y respectively while contributions from JV fell 2% y-o-y, largely due to contributions from newly acquired / completed assets offset by divestments and some decline in occupancy.
  • Gearing was relatively stable at 43.7% vs 44.3% in 3Q21. Average cost of debt was relatively stable at 2.35% vs 2.32% in 3Q21 
  • NAV improved to S$2.11 vs S$2.047 in 3Q21 and S$2.055 in 4Q20. Overall portfolio valuation improved 3.3% largely from overseas properties

Key highlights

Key Operational Data4Q20213Q2021%q-o-q4Q2020% y-o-y
Portfolio occupancies (est)96.0%95.0%1 ppt94.6%1.4 ppt
– SG Office97.5%96.1%1.4 ppt96.7%0.8 ppt
– SG Retail94.6%94.9%-0.3 ppt90.2%4.4 ppt
– AU Office94.2%92.8%1.4 ppt94.0%0.2 ppt
– AU Retail85.6%85.6%0 ppt91.7%-6.1 ppt
– UK Office98.3%98.3%0 ppt100.0%-1.7 ppt
WALE (years)     
– SG Office2.672.79-0.12.97-3.1
– SG Retail2.282.48-0.22.49-2.7
– AU5.605.79-0.26.80-7.0
– UK10.410.9-0.5 -0.5
Rental reversions     
– Suntec City Office0.2%7.3%-7.1 ppt3.7%-3.5 ppt
– Suntec City Mall -11.8%-11.2%-0.6 ppt-10.8%-1 ppt
Lease expiries/Rent Reviews (inc vacancies) in FY2022 by NLA   
– SG Office16.6%18.7%-2.1 ppt   16.6 ppt 
– SG Retail23.3%22.6%0.7 ppt   23.3 ppt 
– AU2.7%2.3%0.4 ppt   2.7 ppt 
– UK1.7%0.0%1.7 ppt   1.7 ppt 
Suntec City Mall     
– Footfallna-51.0%na-50.0%50 ppt 
– Tenant Salesna-33.0%na-33.0%33 ppt 

(+) Office portfolio occupancy improved marginally; 4Q21 positive reversions though moderated will remain into FY22; seeing relocation demand from HK.

  • Portfolio occupancy saw slight uptick +1ppt q-o-q mainly from office assets in Singapore and Australia, +1.4ppt q-o-q for both respectively.
  • Singapore office saw improvement in occupancy with Suntec City Office recorded +1.7ppt q-o-q to 97.2%
  • Suntec City Office continue to record positive rental reversions of +0.2%, though moderated from +7.3% in 3Q21 and +2.1% in 2Q21. FY21 rental reversions +2.2%. Signing rents in 4Q21 ranges between c.S$9.00 to S$9.50psf vs FY22 expiring rents of S$9.31. Higher rents signed could hit c.S$11psf is very encouraging. Management expects FY22 reversions to remain positive though moderated as the office rents gradually recover.
  • Similarly to comments from its peer, Suntec saw some relocation from HK to Singapore in all three Singapore office – ORQ, MBFC and Suntec City Office and expect demand to remain strong on limited new supply and low vacancy rates.  
  • Standard Chartered Bank lease at MBFC is expected to return c.200k sqft/c.50% as previously guided (lease expiring in 4Q2022) and there has been interests for the large space coming from tech sector. Management is hopeful to see strong reversions with backfilling.

(+/-) Dec21 tenant sales and footfall exceeded that of Dec19; reversions will remain weak despite GTO rents recovery. 

  • Suntec City Mall’s occupancy remained relatively stable q-o-q at 95% and expected to remain at these levels into FY2022.
  • 4Q21 rental reversions remained  weak though stable q-o-q at -11.8% vs -11.2% (ex-anchor tenant: -10%) in 3Q21 (-7.2% 2Q21 and -26.2% in 1Q21 (ex-anchor tenant: -16.0%)). 
  • Despite a recovery in GTO rents (up from 4% to 5%-6% of total rents), management expects FY22 base rent reversions to remain at -10% levels as sentiment remains cautious given the recurrence of new waves of COVID-19. 
  • Nov-Dec21 saw strong tenant sales and footfall with Dec21 tenant sales exceeded that of Dec19. Overall same-store tenant sales in FY21 is c.85% of FY19 due to office physical occupancy is still less than 30% and limited tourists.

(+/-)21 Harris achieved occupancy above 90%; recovery delayed with start-stop situation; Australia portfolio supported by rent guarantee.

  • AU office assets saw occupancy improved 1.4ppt q-o-q to 94.2% mainly from 21 Harris (+10.3 ppt to 91%) while the rest remains relatively stable
  • The recent resurgence and ‘lockdown’ in Australia has delayed sentiment recovery. However, supply appears to have moderated and management tis hopeful that post full reopening, there could be some pent-up demand for office space.
  • Australia office rental income continues to be largely supported by rent guarantee from 2 assets (21 Harris St and 477 Collins St) and low lease expiries in FY22 at < 3%.

(+) Active lease demand back to pre-pandemic levels and expect market vacancy to decline further. 

  • Active demand seen in West End and City of London recovered to pre-pandemic levels and expect vacancy for Central London office markets of 8% currently to decline further.
  • There is limited (<2%) lease expiries in the next 2 years (FY22 to FY23) for Suntec’s UK office assets.

(+) Overall portfolio valuation +3.3% largely better cashflow expectations with higher rents and cap rates compression.

  • Overall portfolio valuation improved 3.3% largely from overseas properties; AU +6.5%, UK (Nova Properties) +3.2%. 
  • Singapore portfolio valuation (excluding the divested assets) improved 1.4% vs previous valuation
  • The improvement in valuation were led by higher signing rents, stronger cashflow expectations and some cap rate compression (12-13 bps for Australia office assets)

(+) Divestment plans to improve gearing is ongoing; likely Australia assets

  • Management’s divestment plans to improve gearing is ongoing as the team continue to evaluate their options. Australia assets could potential be targeted for divestment given the recent improvement in valuation.