1Q14 DPU rose 5.1% YoY to 1.24 SGD cts; revenue up 1.8% YoY excluding payment of Toshin’s rent arrears in 1Q13.

Non-core Chengdu mall remains a drag on overall portfolio; divestment is essential in our view.

Maintain HOLD with DDM-derived TP unchanged at SGD0.84.

Results in line with expectations

Excluding the 1Q13 one-time payment of SGD5.3m in accumulated rental arrears from master tenant Toshin at Ngee Ann City, SGREIT posted a 1.8% YoY rise in 1Q14 revenue to SGD49.2m. This increase was bolstered by a 6.2% YoY uptick in revenue from its Singapore properties, offset by lower contributions from properties in Japan, China and Malaysia. Renhe Spring Zongbei Mall in Chengdu, China, continued to languish, with revenue sliding 16.5% QoQ and 29.5% YoY to SGD2.8m amid stiff competition and the slowdown in the high-end luxury retail segment. 1Q14 DPU rose to 1.24 SGD cts, up 5.1% YoY (stripping out the 0.19 SGD cts in 1Q13 from the Toshin payout). Balance sheet remained strong with a low gearing of 29.6%, with 28.6% of total borrowings due for refinancing in 2015 and 23.2% in 2016.

Upcoming lease renewals

In Malaysia, management is eyeing a ~7.2% increase in rent when the master tenancy with Katagreen Development for Starhill Gallery and Lot 10 is up for review in 2016. For Australia, it expects rent for the David Jones Building to go up by ~6% in Aug 2014. In Singapore, there is potential for leasable area expansion when Wisma Atria is linked up with the new Thomson Line Orchard MRT in 2021. In our view, inorganic acquisitions have a higher chance of “moving the needle”, and management said previously that it was considering the Singapore, Malaysian and Australian markets. We also look forward to further acquisitions and divestments of its non-core assets in China and Japan in FY14E- 15E. Until then, we maintain our HOLD recommendation with an unchanged DDM-derived TP of SGD0.84  

Source: Maybank Kim Eng Research - 30 Apr 2014