Improved performance
? 1Q22 distributable income of S$68.7m was slightly below our expectations, at
22% of our FY22F forecast.
? Office performance boosted by new contributions; retail reversions stabilising.
? Downgrade to Hold from Add with an unchanged TP of S$1.79.
1Q22 business update
SUN reported a 1Q22 gross revenue of S$99.2m (+13.9% yoy), while distributable income
to unitholders rose a higher 18.2% yoy to S$68.7m with the inclusion of S$5.8m of capital
distribution. 1Q22 DPU of 2.391 Scts, up 16.9% yoy, was slightly below our projections at
22% of our FY22F forecast. The better operating performance was due to contributions
from The Minster in the UK as well as higher income from Suntec Mall and Convention and
21 Harris St, partly offset by lower occupancy at 177 Pacific Highway and weaker A$. As
at end-1Q, office/retail’s committed occupancy stood at 96.7%/95.2%. SUN’s gearing
stood at 43.3%, while all-in financing cost declined qoq to 2.31%. SUN aims to continue to
strengthen its balance sheet through active capital management. About 60% of its A$
income was hedged as at 1Q22.
Better office portfolio performance due to new acquisitions
Singapore office contribution, including JV income, was flat yoy at S$46.4m in 1Q22,
impacted by the divestment of Suntec Office strata units, partly offset by lower sinking fund
contributions and higher JV income from ORQ. SUN enjoyed positive rental reversion of
5.3% in Singapore, with demand coming from the TMT, shipping and freight forwarding
and financial services segments. Management maintained its guidance for moderate
positive rental reversions for the rest of FY22F. Australia contribution was weaker yoy due
to lower occupancy at 177 Pacific Highway and Southgate, higher rent abatement/incentive
at 55 Currie and weaker A$. In the UK, new contributions from the Minster Building and
lower retail rent concession at Nova Properties helped boost performance yoy. Looking
ahead, there are minimal expiries of 9.9% in Singapore, 2.8% in Australia and 1.7% in the
UK for the rest of FY22F.
Retail rent reversion stabilising
1Q22 retail NPI rose 33.1% yoy to S$22.1m, due mainly to higher occupancy and rents at
Suntec Mall and the absence of sinking fund contributions, partly moderated by lower
occupancy at Marina Bay Link Mall. Suntec Convention also booked a smaller S$0.5m
loss. Committed occupancy at Suntec Mall improved to 96% at end-1Q22 and rental
reversions improved to flat rental reversions as leasing activities gained traction. 1Q22
tenant sales at Suntec Mall were lower vs. 2019 levels. SUN has 19.7% of retail leases
expiring for the rest of FY22F. Management guided for rental reversions to remain weak in
the near term as retailers remain cautious. To future-proof Suntec Mall as a destination
mall, management intends to enhance the mall offerings with activity-based concepts and
new dining options.
Downgrade to Hold from Add
We lower our FY22-24F DPU estimates by 1.84-4.27% post update, as we align our
assumption for the proportion of fees paid in units to 50%, in line with management’s
guidance, and maintain our DDM-based TP of S$1.79. With limited total returns in the near
term, we lower our rating to Hold. Upside catalysts: faster-than-expected recovery of its
retail and convention business with the recent relaxation of Covid-19 measures. Downside
risk: emergence of a new variant that could impact the reopening of the economy.