• 3QFY19 results in-line
• DPU was 1.39 S cents
• FV estimate of S$1.05

Growth driven by The Rail Mall and Figtree Grove Shopping Centre

SPH REIT’s 3QFY19 gross revenue grew by S$6.6m or 12.7% YoY to S$58.3m and net property income (NPI) increased by S$5.8m or 14.2% YoY to S$46.3m, bringing 9MFY19 to 75% of our full-year estimates, which we consider to be in-line with our expectations. Growth was largely contributed by the acquisitions of The Rail Mall in Singapore and Figtree Grove Shopping Centre in New South Wales, Australia, which were acquired in 2018.

DPU reported growth of 1.5% YoY to 1.39 S cents, which was in-line, at 75% of our full-year estimate. Gearing ratio remained healthy at 30.1% and average cost of debt was 2.89% as at 31 May 2019.

Positive Rental Reversions for the Portfolio

Overall committed occupancy remained strong at 99.0%. In 9MFY19, overall portfolio continued to register positive rental reversions of 8.4% on the back of rising overall tenant sales and higher visitor traffic (+4.4% YoY) for SPH REIT’s Singapore assets. For Paragon, its rental reversions were +8.6% in 9MFY19, on 21.4% of the property’s NLA.

The Clementi Mall and The Rail Mall also saw positive reversions of 5.8% and 9.1%, respectively, representing 10.1% and 21.2% of the property’s NLA. For 4QFY19, 22.0% of the leases at Figtree Grove Shopping Centre are due for renewal. There are limited leases expiries for Paragon (0.1%) and The Clementi Mall (1.0%) while The Rail Mall will see 41.2% of its leases expiring. However, the contribution of The Rail Mall to the overall portfolio is small, only contributing to 2.2% of the portfolio’s gross revenue and NPI in 9MFY19.

For The Clementi Mall, 70.0% of its leases will be expiring in FY20. The management has started engaging with the tenants and is positive about the retention rate given the past track record and continued rising tenant sales.

Limited Challenges From Jewel

The impact from the opening of Jewel on SPH REIT is likely to be limited, given the locations of the SPH REIT’s 3 malls (none is located in the East) and the different positioning. Jewel is mainly focused on F&B, Fashion and entertainment. We expect the impact which Jewel poses on Paragon to be limited, given Paragon’s positioning as a premier upscale retail mall housing luxury brands.

Maintain HOLD and our fair value estimate increases from S$1.00 to S$1.05.

Source: OCBC Research - 15 Jul 2019