• 1QFY19 DPU unchanged YoY
• Portfolio rental reversion of +9.7%
• First venture outside of Singapore

1QFY19 Results Within Expectations

SPH REIT started its new financial year on a stable footing, reporting 1QFY19 results which came in within our expectations. Gross revenue rose 0.6% YoY to S$53.8m, but NPI fell 1.0% to S$41.8m as a result of higher marketing expenses. Its gross revenue and NPI formed 24.5% and 24.1% of our FY19 forecasts, respectively. DPU was unchanged YoY at 1.34 S cents, as SPH REIT retained S$1.3m of its taxable income available for distribution in 1QFY19, versus S$2.2m retained 1QFY18. DPU constituted 23.8% of our full-year forecast.

Positive Rental Reversions Led by Paragon

Overall committed portfolio occupancy remained high at 99.2%, as at 30 Nov 2018 (end-FY18: 99.4%). The brightest spot came from SPH REIT’s rental reversions, which came in strongly at +9.7%. This was led by Paragon, which delivered positive rental reversions of 10.1% (8.4% of the property’s NLA), and this was also the mall’s first positive rental uplift since 9MFY17. As for The Clementi Mall and The Rail Mall, rental reversions were 4.5% (0.9% of the property’s NLA) and 7.9% (7.1% of the property’s NLA), respectively.

Marking Its Maiden Footprint Overseas With Acquisition in Australia

Post 1QFY19, SPH REIT announced that it had on 21 Dec 2018 completed the acquisition of a 85% interest in Figtree Grove Shopping Centre (FGSC) for a total acquisition cost of ~A$188.2m (purchase consideration was A$175.1m).

FGSC is an established sub-regional mall located in Wollongong, New South Wales, Australia, and is SPH REIT’s maiden acquisition outside of Singapore. This is not a surprise to us as management had alluded previously that Australia was one of the markets it was studying closely. FGSC sits on freehold land and has a total gross lettable area of ~236,634 sq ft with 940 carpark lots.

It is positioned as a nondiscretionary mall as ~58.4% of space is leased to supermarkets and a discount departmental store. The expected NPI yield works out to be 6.0% (or 5.7% post-transaction costs). SPH REIT’s gearing ratio will increase to ~30.1% with this acquisition. We maintain our fair value estimate of S$0.99 for now.

Source: OCBC Research - 7 Jan 2019