FY23 Results – Traveling Singaporeans takes a toll on Orchard spend
- Topline revenue rose 1.8% y-o-y to S$289m; DPU of 5.02 Scts above our estimates, a 9% y-o-y decline on higher financing cost
- Strong reversionary rents for Singapore assets at +11.6% for Paragon Mall, +8.7% for Clementi Mall; Paragon mall saw a 3% y-o-y decline in tenant sales as outbound travel amongst Singaporeans and slow recovering tourist footfall takes a toll on Orchard spend
- S$300m perpetual securities to see a reset in Aug-24; Low gearing at 30% could mean perpetual redemption through debt
- We currently have a BUY call with TP of S$1.05; More details after analyst briefing at 4pm today
- FY23 revenue at S$289 million, was an increase of 1.8% y-o-y, while NPI rose 1.7% y-o-y to S$215m.
- Full year DPU of 5.02 scts was a 9% y-o-y decline on higher interest cost and foreign translation losses, but came in above our full year estimates
- Operationally, reversions was strong in our view and reflective of peers; Paragon delivered double digit reversions at +11.6%, while Clementi mall clocked in healthy reversions signed at a +8.7%
- Overall portfolio reversions were dragged down by negative reversionary leases in Australia; Westfield Marion at -5.8% and Figtree grove at -11.6%
- Portfolio occupancy stable at 98.1%, dragged down by relatively lower occupancies within Australia malls at c.97% – 98%
- In terms of valuation, Singapore retail malls Paragon and Clementi saw a 2% y-o-y uplift in valuation on stronger cash flow recovery;
- Australia assets saw a decline of -5% for Westfield Marion and -7.4% for Figtree Grove on a 50bps cap rate expansion for both properties; Cap rate landed at the 6.0 – 6.5% handle as at 31st Dec 2023.
- Capital management continues to be stable with Paragon REIT having one of the lowest gearing in the sector at 30%
- ICR ratio and adjusted ICR ratio ended the year at 3.5x and 2.9x respectively on a higher average cost of debt of 4.3%
- Paragon REIT’s S$300m perpetual securities will see a coupon reset come August-24, with management previously sharing their considerations of redeeming the perpetuals through debt refinancing.
Paragon mall’s passing rents has recovered past 2019 average levels. On a full year basis, Paragon REIT’s gross revenue at S$172.3m rose 3% y-o-y on the back of healthy reversionary rents of 11.6% for the period. This would finally represent a recovery back to and above pre-COVID levels in 2019 for the Orchard positioned asset, where the asset brought in S$170.4m in gross revenue. On the other hand, we note that Clementi mall boosted a stronger performance in line with suburban peers, with passing rent recovering to c.6% above pre-COVID levels for this financial year, boosted by generally stronger and more stable underlying tenant sales.
Outbound travel amongst locals eats into prime retail sales. Industry retail data suggests that domestic spend per pax saw a downward dip in 2H23, potentially prompted by the normalisation of outbound travel amongst Singaporeans. We suspect that the trade categories taking a toll would be items within the high end luxury segment, which could be purchased overseas at cheaper due to currency exchange. Paragon sales for the period also reflects a similar trends with a 3% y-o-y decline in tenant sales to S$691.9m. Tourism recovery for 2024 continue to be on the cards, but the uncertainty on China outbound travel recovery continue to see headwinds of a strong SGDRMB foreign exchange rate, alongside, international flight capacities which is still below pre-COVID levels. We will need further affirmation on the return of tourist footfall, to more than compensate for the loss in local footfall and spend amongst Singaporeans to Orchard.