Strong 1Q22, raising our forecasts, TP
1Q22 DPU rose 17% YoY and 5% QoQ, driven by improvement at Suntec City,
contribution from London’s Minister Building, and resumption of capital
distributions (c.SGD0.2cts per quarter to 4Q23). Occupancy improved with
demand recovery, and we expect fundamentals for SUN’s Singapore office
and retail assets to strengthen further following easing of restrictions,
reopened borders, and rising rents. We raise our FY22-24E DPUs by 5-8%
on stronger-than-expected results, and visibility on capital distributions.
With 15% potential total return to our higher SGD2.00 DDM-based TP (COE:
6.9%, LTG: 2.0%), reiterate BUY.
Retail recovery on firm footing
Suntec City mall’s performance improved further in 1Q22, with revenue
+12.9% YoY/+8.4% QoQ (vs +9.6% YoY/+16.0% QoQ in 4Q21) and NPI +13.3%
YoY/+33.1% QoQ (vs +3.9% YoY/+21.9% QoQ). This was underpinned by
higher occupancy of 96.0% (from 94.7% in 4Q21) and new tenants (48% of
leases, vs 40% in FY21). Rental reversion was flat (vs -11.8% in 4Q21), which
was better than earlier guidance of -5% to -10%, with the reversion outlook
raised to 0-5% for FY22E. Domestic demand for consumer and corporate
events will remain the key near-term driver for the convention business to
reach breakeven, before a MICE-led recovery expected in FY23E.
Singapore office rents set to rise
SUN’s Singapore office occupancy increased QoQ to 97.8% (from 97.5%),
with higher occupancy at Suntec (97.2% to 98.6%) and MBFC Tower 1&2
(97.3% to 97.6%). Rental reversion was +5.3% in 1Q22 (from +3.2% in FY21),
and +1.9% at Suntec office (from +2.2%). Demand is strong and continues
to be led by tech and FIs. We expect reversions to ease, while staying
slightly positive, given the higher expiring rents (at SGD9.38 psfpm vs
SGD9.26 psfpm passing rents). Occupancy in Australia/UK was stable at
94.3%/98.3%, with NPIs well-cushioned by rent guarantees at 21 Harris and
477 Collins, and visibility backed by a long 10.4-year WALE.
Gearing fell, eyeing AUM growth
NAV rose 1% while gearing narrowed to 43.3% (from 43.7% as at end-Dec
2021), as its all-in debt cost was lower at 2.31% (from 2.35%). SUN remains
comfortable at a 50-60% fixed-debt ratio, even as a 25bps rise in interest
cost could lower its DPU by 2.3%. Management is eyeing AUM growth in
Singapore, which could be timed with divestments (in Australia). Its recent
strong share price action suggests scope for EFR opportunities, which could
strengthen its balance sheet, and support accretion from potential deals.