4Q23 Results Analysis: Asset values held up better than expected
- FY23 DPU -20% y-o-y to 7.14 Scts, impacted by higher interest cost. This is slightly higher than our estimates. 4Q23 Core DPU (excluding capital distribution) -6% y-o-y (+4% q-o-q) to 1.67 Scts.
- Key positives: i) Gearing remained stable, ii) portfolio valuation held stable, supported by Singapore assets iii) Suntec Convention recover steadily; iv) strata office sale of S$94m at 31% above book
- Key data to watch: i) backfilling of vacancies in Australia and UK portfolio; ii) risk of potential higher for longer interest rates
- Maintain HOLD; TP of S$1.10.
What Happened?
Gearing held stable at 42% as portfolio valuation held up better than expected; Suntec Convention continue to see recovery. Suntec’s FY23 DPU -20% y-o-y to 7.14 Scts, slightly above our estimates. 4Q23 core DPU -6.2% y-o-y (+4% q-o-q) to 1.67 Scts. Portfolio performance were generally held up by Singapore assets but was impacted by higher interest costs and some higher expenses. Gearing held relatively stable at 42.4% (vs 42.7% in 3Q23) as portfolio valuation (+0.7% y-o-y) held up better than expected. ICR ratio held stable q-o-q at 2.0x (bank covenants were lowered to 1.75x). Portfolio valuation was held up by Singapore assets (+3.1% y-o-y, cap rates remain stable except Suntec Convention -25bps). Australia saw -4.5% decline (cap rates expanded 50 to 60bps) and UK -10.2% (cap rates expanded c.60bps) Portfolio occupancy declined marginally to 95.7% vs 98.1% in 3Q23, mainly from Australia (-6.8 ppt q-o-q to 88.6% mainly due to anchor tenant left 55 Currie St) and Singapore retail (-3ppt q-o-q to 95.6% mainly from Suntec City Mall). Office portfolio continues to deliver strong double digit positive reversions both in Singapore (+13% in 4Q23) and Australia (12.8% in 2H23). Similarly, Suntec City Office and Suntec City Mall delivered strong positive reversions at 12% and 26% in 4Q23 respectively. FY23 tenant sales is +4% y-o-y (14% above pre-COVID). 4Q23 tenant sales psf at Suntec City Mall is estimated to be flat y-o-y. Suntec Convention delivered strong recovery. 2H23 Revenue and NPI grew c.40% y-o-y.
Our View
Asset valuation risks are allayed; key beneficiary of interest rate cut. Maintain HOLD; TP of S$1.10. Suntec has successfully kept gearing stable at 42% despite some concerns previously, will likely boost some confidence. On strata office sale, Suntec had divested S$94.4m vs target of S$100m at 31% above book value. Singapore assets continue to hold up portfolio performance despite some cautious outlook in both office and retail. Australia office continue to be challenging with AEIs on assets to support tenant retention. We believe Suntec will be a key beneficiary of potential interest rates cuts as hedging ratio remains low at c.60%. Suntec currently trades at 5.2% FY24F yield and 0.5x P/NAV. We maintain our HOLD rating and TP of S$1.10 given its tighter yield vs peers.
| Summary of results | 4Q2023 | 3Q2023 | %q-o-q | 4Q2022 | % y-o-y | FY2023 | FY2022 | % y-o-y |
| Revenue | 115.0 | 123.4 | -6.8% | 224.2 | -48.7% | 462.7 | 427.3 | 8% |
| NPI | 75.2 | 84.6 | -11.1% | 163.3 | -54.0% | 313.2 | 315.8 | -1% |
| Income contribution from JV | 24.0 | 23.8 | 0.8% | 58.0 | -58.6% | 94.0 | 118.8 | -21% |
| DI | 42.8 | 52.0 | -17.7% | 118.0 | -63.7% | 206.8 | 255.5 | -19% |
| DPU | 1.87 | 1.79 | 4.1% | 1.99 | -6.2% | 7.14 | 8.88 | -20% |
| Gearing | 42.3% | 42.7% | -0.4 ppt | 42.4% | -0.1 ppt | 42.3% | 42.4% | -0.1 ppt |
| Average cost of debt | 3.84% | 3.78% | 0.1 ppt | 2.94% | 0.9 ppt | 3.84% | 2.94% | 0.9 ppt |
| DSCR | 2.0 | 2.0 | – | 2.4 | (2.4) | 2.0 | 2.4 | (0.4) |
| Hedging ratio | 61% | 55% | 6 ppt | 66% | -5 ppt | 61% | 66% | -5 ppt |
| Key Operational Data | 4Q2023 | 3Q2023 | %q-o-q | 4Q2022 | % y-o-y |
| Portfolio occupancies (est) | 95.7% | 98.1% | -2.3 ppt | 98.2% | -2.4 ppt |
| – SG Office | 99.7% | 99.5% | 0.2 ppt | 98.5% | 1.2 ppt |
| – SG Retail | 95.6% | 98.6% | -3 ppt | 98.1% | -2.5 ppt |
| – AU Office | 88.6% | 95.4% | -6.8 ppt | 97.6% | -9 ppt |
| – UK Office | 93.5% | 93.5% | 0 ppt | 98.3% | -4.8 ppt |
| WALE (years) | |||||
| – SG Office | 2.7 | 2.8 | -0.1 | 2.7 | -2.8 |
| – SG Retail | 2.1 | 2.2 | -0.1 | 2.3 | -2.4 |
| – AU | 5.0 | 4.9 | 0.1 | 5.3 | -5.2 |
| – UK | 8.1 | 8.4 | -0.3 | 9.5 | -9.8 |
| Rental reversions | |||||
| – Suntec City Office | 12.2% | 14.0% | -1.8 ppt | 7.7% | 4.5 ppt |
| – Suntec City Mall | 25.7% | 25.3% | 0.4 ppt | 9.9% | 15.8 ppt |
| Suntec City Mall (quarterly y-o-y) – est | |||||
| – Footfall | -2.7% | 2.3% | -5 ppt | n/a | n/a |
| – Tenant sales (S$ psf) | -0.3% | 0.7% | -1 ppt | n/a | n/a |