3Q/9M 12 earnings inline. 3Q12 revenue at SGD46.3m (flat QoQ, +5% YoY), was 25% of ours consensus estimate. 9M12 revenue at SGD138.6m (+3% YoY), was 75% of ours consensus estimate. 3Q12 DPU at 1.11 SGcts (+2.8% QoQ, +11% YoY) was 26% of ours and consensus estimates. 9M12 DPU at 3.26 SG-cts (+5% YoY) was 76% of ours and consensus estimates.

Wisma Atria harvesting upside. Wisma’s AEI is completed in 2Q12 with all Orchard road fronting stores commencing business. It was officially relaunched on 6 Sep and enjoyed a +2.7% QoQ and +18.6% YoY increase in retail revenue on strong rental reversion and full committed occupancy. According to our estimates, average passing rent continues to scale from SGD34.29 psf/mth last quarter to SGD35.04 psf/mth.

Portfolio review. Wisma’s retail and office occupancy were at 100% and 97.7% from 99.5% and 99% last quarter respectively. Ngee Ann City retail maintained at full occupancy while Ngee Ann City office occupancy remains flat at 98%. In Kuala Lumpur, H&M has opened its first flagship store of 35,000 sq ft in Lot 10, bringing new excitement to the mall. We also noted that the Renhe Spring Zongbei’s revenue was down 12.3% QoQ and 11.1% YoY. Management attributed this to the softening of the retail market in China for the mid to high end luxury segment.

Toshin rental review. The Court application had concluded with the Court of Appeal judgment announced on 28 Aug. The President of the Singapore Institute of Surveyors and Valuers is in the process of designating the 3 independent valuers required for the rent valuation. In the meantime, Toshin has exercised its option to renew NAC retail for another 12-year term, expiring in 2025, thus lowering the lease expiry in 2013 from 89.6% of gross rent in 1Q12 to current 3.8%. The next rent review will be in 3-years time. Toshin constitutes 85.2% of NAC retail gross rent as at 30 Sep 2012 and is SGREIT’s largest tenant (18.8% of portfolio gross rent). 3Q12 average passing rent at NAC retail stays at depressed levels of SGD13.69 psf/mth from our estimates. We expect marginal increment until the next rent review.

Investment thesis intact. SGREIT’s key assets are in the coveted Orchard Road area, where tight supply and the entry of new international retailers should give it greater bargaining power in terms of leasing its space. We continue to like SGREIT for the rental upside at Wisma Atria and income stability in Malaysia and Australia. At 5.7% FY13F yield and 395 bps yield-spread, we reiterate BUY with a DDM-derived TP of SGD0.85.

Source: Maybank Kim Eng Research - 30 Oct 2012