Results above our expectations
- 2HFY22 (2H financial year to end-Jun 2022) distribution per unit (DPU) grew 8.6% yearon-year (YoY) to 2.02 Singapore cents excluding effects of deferred DPU
- Portfolio occupancy declined slightly to 95.4%
- Healthy gearing of 36.2% with high debt hedge ratio of 93%
2HFY22 results above our expectations – SGREIT’s 2HFY22 results beat our expectations. Gross revenue and net property income (NPI) rose 2.8% and 7.6% YoY to SGD95.5m and SGD75.1m, respectively. Growth was driven largely by lower rental rebates to tenants and lower operating expenses, but partially offset by weaker contribution from Wisma Atria Retail and depreciation of the AUD relative to the SGD. 2HFY22 DPU fell 2.4% YoY to 2.02 Singapore cents. However, if we exclude the effects of deferred DPU which was released in 2HFY21, SGREIT’s DPU would have increased by 8.6% YoY. For FY22, SGREIT’s DPU declined 3.8% to 3.80 S cents but was up 5.6% if we exclude the effects of the deferred DPU as highlighted earlier. FY22 DPU came in 4.9% above our forecast.
Tenants’ sales continued to recover at Wisma Atria Retail – Operationally, SGREIT’s Wisma Atria Retail property registered a strong rebound in operating metrics, with shopper traffic and tenants’ sales increasing 32.1% and 43.6% YoY in 2HFY22. This was due to the relaxation of community safe management measures and return of tourists, albeit not yet in full force. 4QFY22 tenants’ sales came in 4.8% above 4QFY19, which was before the pandemic. For FY22, Wisma Atria Retail property’s shopper traffic grew 25.4%, while tenants’ sales rose 18.2%. However, we believe rental reversions remained negative for the property, as some retailers are still cautious over rising input costs and manpower shortages. SGREIT’s overall portfolio occupancy declined 1.2 percentage points (ppt) quarter-on-quarter (QoQ) to 95.4%, mainly due to the drag from Myer Centre Adelaide in Australia (- 4.4 ppt QoQ to 89.1%). However, we understand that management has already partially backfilled the vacant space.
Gearing remains healthy at 36.2% with 93% of borrowings hedged – SGREIT recorded a revaluation loss on its investment properties, with valuation declining by 2.4% due largely to Wisma Atria Property (-4.6%) and negative currency impact from its overseas properties. However, SGREIT’s gearing ratio remained healthy, inching up only 0.1 ppt QoQ to 36.2%. It has hedged 93% of its borrowings. SGREIT said that for every 100 basis points increase in borrowing costs for its unhedged borrowings, this is estimated to reduce its DPU by 0.04 Singapore cents, which makes up ~1% of our FY23 forecast. After adjustments, which includes minor tweaks to our DPU forecasts, rolling forward our valuations and raising our risk-free rate assumption from 2.5% to 3.25%, our fair value estimate decreases slightly from SGD0.65 to SGD0.64.
SGREIT’s ESG rating was downgraded in Jan 2021. SGREIT’s overall corporate governance practices
trail those of its global and home market peers, particularly in board structure. However, it scores better in the category of ‘Opportunities in Green Building’, with SGREIT engaging with its tenants to improve on the operational efficiencies of its properties. ~30% of SGREIT’s overall portfolio is certified by recognised green building standards, which is higher than the industry average of 25% as of FY19. BUY. (Research Team)