• 4QFY15 DPU flat YoY at 1.39 S cents
• Portfolio rental reversion of 8.6%
• Full committed occupancy

4QFY15 results met our expectations

SPH REIT reported its 4QFY15 results which came in within our expectations. DPU was flat YoY at 1.39 S cents on the back of a mild 0.6% decline in gross revenue to S$50.8m, although the former was boosted by a distribution of S$1.6m from its taxable income available for distribution which was retained in 9MFY15.

For FY15, SPH REIT’s revenue came in at S$205.1m, which was 1.4% higher than FY14 (comparative period from 1 Sep 2013 to 31 Aug 2014); while DPU of 5.47 S cents represented an increase of 0.7%. These constituted 99.6% and 101.6% of our full-year projections, respectively.

Portfolio rental reversion of 8.6%; 100% committed occupancy

Both Paragon and The Clementi Mall delivered positive gross revenue and NPI growth in FY15. Overall portfolio committed occupancy and rental reversion were solid at 100% and 8.6%, respectively. Rental reversions at Paragon stayed positive at 9.1% for FY15, but continued to moderate (9MFY15: 9.8%, 1HFY15: 11.6%, 1QFY15: 12.5%), given the challenging retail scene. The Clementi Mall’s rental reversion came in at -5.6% for the full-year, but was a big improvement from the -11.4% registered for 9MFY15, implying a robust performance in 4QFY15.

In terms of shopper traffic, Paragon and The Clementi Mall achieved positive growth of 2.0% and 4.7% to 18.8m and 30.8m, respectively, in FY15. Tenant sales for The Clementi Mall rose 3.6% to S$242m, but were down 3.2% to S$657m for Paragon, primarily due to fitting-out works as part of its tenancy revitalisation program.

Keeping our HOLD rating intact

SPH REIT’s gearing remained healthy at 25.7%, which we believe is the lowest within the S-REITs universe. 84.7% of its S$850m debt facility is on a fixed rate basis, thus mitigating its risk to interest rate fluctuations. We fine-tune our assumptions but maintain our HOLD rating and S$0.99 fair value estimate on SPH REIT as we see limited potential total returns ahead. The stock is trading at FY16F P/B ratio of 1.02x and distribution yield of 5.7%.

Source: OCBC Research - 13 Oct 2015