4Q/FY12 earnings inline. SGREIT's FY12 DPU beats street estimates of 4.30 SG-cts with an upbeat payout of 4.39 SG-cts. FY12 revenue at SGD186m (+3%) was 100% of ours and consensus estimate. 4QFY12 revenue at SGD47.4m (+2% QoQ, +3% YoY) was 26% of ours and consensus estimate. FY12 DPU at 4.39 SG-cts (+7%) was 101% of ours and 102% of consensus estimates. 4QFY12 DPU at 1.13 SG-cts (+2% QoQ, +12% YoY) was 26% of ours and consensus estimates. Gearing inched down to 30.3% from 31.2% last quarter, following revaluation gains and depreciation of JPY. Net financing costs for 4QFY12 averaged 3.16% (3Q: 3.13%) with an average term of debt of 1.7 years (3Q: 1.5 years).

Wisma Atria retail 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 +1.7% QoQ and +21.4% YoY increase in 4Q12 retail revenue on strong rental reversion, and almost full occupancy (99.5%). According to our estimates, average passing rent continues to scale from SGD35.04 psf/mth last quarter to SGD35.82 psf/mth.

Portfolio review. Singapore properties contributed 63% of 4Q12 and FY12 revenue. Wisma’s retail and office occupancy were at 99.5% and 98.7% from 100% and 97.7% last quarter respectively. Ngee Ann City retail maintained at full occupancy while Ngee Ann City office occupancy remains flat at 98%. Despite 100% occupancy, Renhe Spring Zongbei's 4Q12 revenue was down 13% YoY, mainly due to lower revenue amidst increased competition and softening of retail market (esp. mid to high-end luxury segment).

Toshin rental review. With regards to the master lease in Ngee Ann City, three international licensed valuers have been appointed according to directions prescribed by the Court of Appeal. The valuers’ work on the rental valuation is expected to be finalised by 1Q13. Toshin constitutes 85.3% of NAC retail gross rent as at 31 Dec and is SGREIT’s largest tenant (18.8% of portfolio gross rent). 4Q12 average passing rent at NAC retail stays at depressed levels of SGD13.68 psf/mth from our estimates.

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. We also incorporated the Plaza Arcade acquisition (Perth), which we expect to complete by 31 Mar 2013, with yield-on-cost of 7.8%-8.6% from FY13-FY18 into our forecast. At 5.5% FY13F yield and 413bps yield-spread, we reiterate BUY with a DDM-derived TP of SGD0.90.

Source: Maybank Kim Eng Research - 30 Jan 2013