+ Positive Rental reversion. Office occupancy rates remain resilient at 97.4% (-1.2% QoQ), and the retail portfolio stands at 97.9% (+0.4% QoQ). Suntec City Mall achieved a rental reversion of 20.2% in 3Q23, with a 2% YoY increase in foot traffic and a 0.4% YoY rise in sales. Suntec convention revenue surged by 87.3% YoY to S$123.4m, driven by a strong recovery from MICE (Meetings, Incentives, Conferences, and Exhibitions) and advertising. We expect rental reversion to continue trending upwards for the retail sector in FY24e (c.10-15%), and Suntec convention is expected to make a full contribution of c.S$10 million in 1Q24e.
+ Divestment on track. SUN is committed to its current divestment plan, aiming to sell strata units at Suntec Office Tower 1-3 worth S$100 million by the end of FY23. Selling prices are supported by strong demand from end-users and limited supply due to URA’s restrictions on new developments. By 3Q23, approximately 40% of the divestment plan was completed, with prices 20% above book value. This is likely to reduce gearing by 100bps, providing a buffer against potential year-end valuation declines. The management expresses confidence in the Singapore market and foresees no change in cap rates. While gearing improvement from divestment may be offset by overseas asset devaluation, it is expected to remain below the 45% threshold.
– The cost of debt has increased to 3.78% (+0.14% QoQ, +37% YoY). Adjusted ICR deteriorated to 2.0x (2Q23: 2.1x), capping the regulatory gearing limit at 45%. We expect the all-in interest cost in FY24e to creep up to 4.25%. There is no commitment to top-up the distributional income using excess cash yet in FY24.