• 2QFY16 DPU flat YoY at 1.40 S cents
• Portfolio rental reversion of 4.3%
• Portfolio occupancy remains firm

2QFY16 results within our expectations

SPH REIT reported a stable set of 2QFY16 results which met our expectations. Gross revenue inched up 1.2% YoY to S$53.1m, while NPI increased by a smaller magnitude of 0.9% to S$40.6m largely due to a one-off provision for prior year property tax based on the assessment received.

Excluding this impact, SPH REIT’s NPI would have increased 3.2% YoY. DPU of 1.40 S cents was on par with 2QFY15. For 1HFY16, SPH REIT’s gross revenue grew 2.0% to S$105.2m, forming 49.8% of our FY16 forecasts. DPU was flat at 2.73 S cents, and constituted 49.6% of our full-year projections.

Minimal leasing risks for remainder of FY16

Portfolio occupancy for SPH REIT remained firm, as The Clementi Mall (TCM) was fully leased, while Paragon was also nearly fully occupied (99.9%), as at 29 Feb 2016. Management continued to fine-tune its tenancy mix at Paragon, and added new tenants such as Diesel, Dutch Baby Café and GOCCO. It achieved positive rental reversions of 4.3% for the entire portfolio in 1HFY16. Paragon saw a rental uplift of 4.3%, which is encouraging as it represented a significant 22.5% of the mall’s NLA.

Rental reversions for TCM came in at 3.1% in 1HFY16. Looking ahead, SPH REIT has minimal leasing risks for the remainder of FY16, as it has only 1.2% and 0.4% of leases due for renewal (as a percentage of gross rental income) for Paragon and TCM, respectively. Management updated us that it has already started engaging its tenants on negotiations for leases expiring in FY17 (30.5% of gross rental income).

Maintain HOLD

SPH REIT’s balance sheet remained healthy, as its gearing ratio was maintained at 25.7%, with 84.7% of its S$850m debt facility on a fixed rate basis (as at 29 Feb 2015). It has S$250m of debt maturing in Jul this year, and management is already in negotiation with several potential lenders on refinancing this tranche. We maintain our forecasts, HOLD rating and S$0.99 fair value estimate on SPH REIT given this in-line set of results.

Source: OCBC Research - 5 Apr 2016