FY22/23 Results – Strutting down the Orchard recovery runway
- Full year FY22/23 DPU at 3.80 Scts (flat y-o-y) in line with estimates; Higher than estimated top line revenue shelters a 4% higher y-o-y financing cost
- Singapore performance propped up by higher revenue from Wisma Atria post completion of interior refresh and higher office occupancy (+ 6.0 ppt y-o-y to 99.4%); Forex conversion munches away at overseas income from other markets albeit stable rents
- SGREIT well positioned to ride the up-cycle in Orchard rent recovery; No refinancing in the coming year to shelter its current 7.2% DPU yield
- We currently have a BUY call with a TP of S$0.68; More insights post analyst briefing on Fri evening
Full year FY22/23 results
- SGREIT reported 2H FY22/23 gross revenue of S$93.0m (-2.5% y-o-y), NPI of S$73.6m (-2.0% y-o-y).
- Full year gross revenue of S$187.7m (+0.7% y-o-y) and NPI of S$147.8m (+2.2% y-o-y) in line with estimates.
- FY22/23 DPU reported at 3.80 Scts was flat y-o-y to neutralise higher y-o-y finance expense of 4.4% and in line with our estimates of 3.79 Scts.
- Singapore Retail – 2H FY22/23 NPI saw a strong c.5.0% y-o-y increase from Wisma Atria post the completion of the assets interior refresh end of last year; Ngee Ann City (NAC) retail was flat y-o-y
- Singapore Office – 2H FY22/23 NPI rose by 6% and 3% at Wisma Atria and NAC respectively alongside higher commanding rents within the office submarket as well as higher occupancy for SGREIT’s SG office segment (+ 6.0 ppt y-o-y to 99.4%)
- Other markets – Income from Australia and Malaysia down 8.0% / 6.3% y-o-y for this half yearly primarily due to forex conversion.
- SGREIT will have no upcoming renewals for the upcoming financial year.
- Average cost of debt up 14 bps q-o-q to end the financial year at 3.67%.
Capital Management gives comfort. SGREIT will be one of the few REITs within the whole sector with minimal to zero refinancing in its upcoming full financial year. The next earliest tranche of refinancing is due to expire only in Sep-24, alongside a 84% fixed hedged ratio to help shelter most of the impact of interest rate hikes in the coming year.
Runway to Orchard rental recovery has just begun. In our recent analysis on local retail passing rents, we note that Orchard passing rents has a good runway to play catch up at its current c.90% of 2019 levels (Singapore retail – ride on recovering rents) This mirrors trends across the island in occupancy costs, which has trended down a six-year low across the board to c.16%. Reversionary adjustments in the range of +3 to +5% is sustainable for rents to ride out a full recovery, with Orchard on the upper bound. We take comfort in the sharp upward rental adjustment at Wisma Atria’s retail mall just 6 months post AEI completion that tenants are willing to fork out extra for well-located retail leases that has ability to generate higher footfall (post exterior refresh). More details post analyst briefing.
Singapore capital values remain tight. Post full year revaluation, SGREIT saw a portfolio devaluation in the range of 3.9% led by overseas assets. Singapore capital values remain tight and unchanged y-o-y at c.4.75% for retail and 3.70% for office. NAC’s valuation was flat y-o-y and Wisma Atria at a 1.2% decline which we attribute to the shortening land lease at the asset. Overseas assets saw declines of a larger magnitude at 15.4% for Australia (50 bps expansion y-o-y to 6.50% – 6.85%) and 7.1% (flat to +20 bps compression y-o-y) for Malaysia.
