• 2QFY19 DPU +0.7% YoY
• Portfolio rental reversion of +8.4%
• Maiden contribution from Australia

2QFY19 Results Within Expectations

SPH REIT reported its 2QFY19 results which came in within our expectations. Gross revenue and NPI both improved by 8.5% to S$58.1m and S$45.9m, respectively. This was driven largely by inorganic growth with the addition of The Rail Mall and maiden contribution from the acquisition of Figtree Grove Shopping Centre in Australia on 21 Dec 2018. DPU grew 0.7% YoY to 1.41 S cents, as payout ratio for the quarter was 98.4%, slightly lower than 2QFY18 (99.6%).

For 1HFY19, SPH REIT’s gross revenue and NPI rose 4.5% and 3.8% to S$111.9m and S$87.6m, respectively, with the latter forming 50.6% of our FY19 forecast. DPU of 2.75 S cents represented a mild growth of 0.4%, and accounted for 48.8% of our full-year projection.

Healthy Operating Metrics

Overall committed portfolio occupancy remained unchanged QoQ at a healthy level of 99.2%, as at 28 Feb 2019. As for SPH REIT’s rental reversions, this came in positive at +8.4% for the entire portfolio in 1HFY19, a slight moderation from 1QFY19, which was +9.7%. For Paragon, rental reversions were +8.6% (15.2% of the property’s NLA); for The Clementi Mall and The Rail Mall, rental reversions were +5.0% (1.0% of the property’s NLA) and +6.2% (14.0% of the property’s NLA), respectively.

There were no new leases or leases due for renewals at Figtree Grove Shopping Centre. According to SPH REIT, its portfolio tenants’ sales continued to register growth, while 1HFY19 visitor footfall grew by 3.4% YoY.

Gearing Ratio Still Low Post Australia Acquisition

Despite the acquisition of Figtree Grove Shopping Centre for a purchase consideration of A$175.1m (for the 85% stake), SPH REIT’s gearing ratio increased from 26.3% to only 30.1%, which we believe is still at a very healthy level. Figtree Grove Shopping Centre currently has a high committed occupancy of 99.3%. We incorporate this acquisition in our model and raise our FY19 and FY20 DPU forecasts by 0.4% and 0.6%, respectively. Consequently, our fair value estimate increases from S$0.99 to S$1.00. Maintain HOLD.

Source: OCBC Research - 8 Apr 2019