• 3QFY17 DPU +0.7% YoY
• Positive portfolio rental reversion of 3.7%
• 100% committed occupancy

3QFY17 Results Within Expectations

SPH REIT reported an in-line set of 3QFY17 results, with gross revenue and NPI growing by 2.1% and 5.4% YoY to S$53.3m and S$42.2m, respectively. The higher NPI margin of 79.1% (+2.5 ppt YoY) was driven by proactive management of its utility contract, coupled with lower property tax and marketing expenses.

DPU for the quarter came in at 1.37 S cents, representing a slight growth of 0.7% YoY as management retained S$0.7m of taxable income available for distribution in 3QFY17, versus S$0.4m retained in 3QFY16. For 9MFY17, SPH REIT’s gross revenue rose 1.6% to S$159.9m and formed 73.8% of our FY17 forecast, while DPU improved 0.5% to 4.11 S cents and constituted 73.6% of our full-year projection.

Full Committed Occupancy and Positive Rental Reversions

SPH REIT continued to showcase its operational resilience, with both Paragon and The Clementi Mall (TCM) achieving 100% committed occupancy, as at 31 May 2017. Furthermore, overall portfolio rental reversion of 3.7% was delivered in 9MFY17 (Paragon +3.6%; TCM +3.7%). Following the completion of TCM’s second renewal cycle, a noteworthy tenant retention rate of 89% was accomplished. We believe this reflects management’s active leasing capabilities and TCM’s attractiveness to retailers given its strategic location in the heart of Clementi Town, although there appears to be a moderation in rental reversions at the mall in 3QFY17.

Maintain BUY

SPH REIT’s balance sheet remains robust, with gearing at a healthy 25.6%, as at 31 May 2017. 85.9% of its debt is on a fixed rate basis. It has no refinancing requirements until 2018 (weighted average term to maturity of 2.3 years and average cost of debt of 2.81% per annum). We reiterate BUY on SPH REIT with an unchanged fair value estimate of S$1.08. This is supported by a firm FY18 distribution yield of 5.7%, based on our projections.

Source: OCBC Research - 13 Jul 2017