DBS: Singapore Hotels

3Q FY21/22 Operational Update – More opportunities for positive reversionary retail rents in FY22/23

• 3Q FY21/22 revenue up 4.2% to S$48.4m and NPI up 8.7% to S$38.5m, trailing behind full year estimates
• Key positives: (i) Singapore occupancy back to a high of 96.1%, (ii) Opportunities to capture positive reversions in SG retail in FY22/23 with 10.5% of leases up for renewal, (iii) The Starhill welcomes several high profile luxury tenants including Rolex boutique and luxury fashion label Off-White
• Datapoints to look out for: (i) Impact of weak AUD to extend to coming quarters and impact AUD-denominated rents (22% revenue exposure), (ii) Stronger traction for tenant sales and traffic at Wisma Atria in 4Q FY21/22 with workers back in office and dine-in cap lifted from end April
• Maintain BUY with unrevised TP of S$0.75

 Operational Update

Summary of results	3Q FY21/22	2H FY20/21	%q-o-q	3Q FY20/21	% y-o-y
Revenue (S$m)	48.4	92.9	4.2%	46.4	4.3%
NPI (S$m)	38.5	69.8	10.3%	35.4	8.8%
DI (S$m)	n.a.	45.9	–	n.a.	–
DPU (Scts)	n.a.	2.07	–	n.a.	–
Key Financial Metrics	3Q FY21/22	2H FY20/21	%q-o-q	1H FY20/21	% y-o-y
Gearing	36.1%	36.10%	0 ppt	35.9%	0.2 ppt
Average cost of debt	3.06%	3.28%	-0.2 ppt	3.21%	-0.1 ppt
ICR (x)	3.3	2.8	0.5	2.5	0.8
Key Operational Data	3Q FY21/22	2H FY20/21	%q-o-q	1H FY20/21	% y-o-y
Portfolio occupancy	96.6%	96.3%	0.3 ppt	95.5%	1.1 ppt
SG Retail	98.9%	98.6%	0.3 ppt	95.2%	3.7 ppt
SG Office	91.5%	89.2%	2.3 ppt	89.6%	1.9 ppt
Singapore	96.1%	95.0%	1.1 ppt	93.0%	3.1 ppt
Australia	94.3%	94.3%	0 ppt	93.70%	0.6 ppt
WALE (years, GRI)	4.9	5.3	(0.4)	5.4	(0.5)

 Operational Update

• SGREIT reported gross revenue (+4.2%) of S$48.4m and NPI (+8.7%) of S$38.5m in 3Q FY21/22, trending behind our full year estimates of S$203.7m and S$149.2m respectively. 
• The higher topline revenue was due to the cessation of rental rebates post The Starhill’s AEI completion in Dec’21 and lower rental assistance. 
• This was partially offset by lower contribution from Wisma Atria retail and a weaker AUD.

 Key Observations

More opportunities for positive reversionary retail rents in FY22/23 at Wisma Atria, Several high-profile luxury tenants open doors at The Starhill post AEI completion in Dec’21

• Gearing stood at 36.1%, with interest cover at 3.3x and average interest rate of 3.06% per annum. Approximately. 90% of debt is fixed on fixed rates. Weighted debt expiry profile is staggered across 3.5 years with no outstanding debt maturing in 4Q FY21/22. 
• Master and anchor leases represent 52.7% of rents as at 31^st March 2022. 
• Singapore Retail occupancy rates remained healthy at 98.9%
• Shopper traffic and tenant sales at Wisma Atria improved 11.7% and 18.2% yoy respectively. The removal of dine-in cap and work from office cap, as well as resumption of night life establishments, post 26^th April should help drive transient traffic back to the Orchard belt malls, with Wisma Atria and Ngee Ann City key beneficiaries of the recent relaxation news. 
• Wisma Atria enhancement works in progress, with main retail area works targeted to be completed by December 2022 without disrupting day-to-day operations. 
• There remains 4.2% of retail and 11.5% of office leases due for renewal in 4Q FY21/22, with greater potential for positive reversionary rents in FY22/23 with 10.5% and 27.2% of retail and office leases up for renewal. 
• Myer Centre Adelaide (MCA) will see the utilization and leasing of the fourth level retail space with the expansion of visual arts education tenant CDW studios. The first Uniqlo retail store within South Australia will also be slated to open at MCA by year end 2022, spanning a retail lease area of over 10,000 sqft. 
• AEI works at The Starhill has been completed in Dec’21 with luxury tenants opening doors at the property, including Rolex boutique, Philipp Plein and luxury fashion house Off-White. 

 Maintain BUY, unrevised TP of S$0.75