• High portfolio occupancy rate of 99.3%
• Positive rental reversions for Singapore portfolio
• Higher FV estimate of S$1.13

1QFY20 Results Within Expectations

SPH REIT’s 1QFY20 results came in within expectations. Gross revenue grew by S$6.3m or 11.8% YoY to S$60.1m and net property income (NPI) increased by S$5.2m or 12.4% YoY to S$47.0, on the back of higher contributions from Paragon and Figtree Grove Shopping Centre, Australia which was acquired on 21 Dec 2018. DPU reported a growth of 3% YoY to 1.38 S cents, which was inline, at 24% of our initial full-year estimate. Gearing ratio remained healthy at 26.8% and average cost of debt was 2.91% as at 31 August 2019.

Singapore Portfolio Remained Healthy

Overall portfolio committed occupancy remained strong at 99.3%. SPH REIT’s three assets in the Singapore portfolio reported positive rental reversions of 10.9% and high occupancy rate of 99.4%, while Figtree Grove Shopping Centre’s occupancy remained strong at 99.2% in 1QFY20. For Paragon, its rental reversions came in at +10.7%, representing 5.5% of NLA.

For The Clementi Mall and The Rail Mall, they reported positive rental reversions of +10.6% and +12.8% respectively, representing 2.5% and 19.6% of the property’s NLA each. As for NPI, Paragon and The Clementi Mall saw an increase of 5.4% and 3.9% respectively, while The Rail Mall’s NPI remained flat.

Completion of Second Acquisition in Australia

The acquisition of a 50.0% interest in Westfield Marion Shopping Centre, Australia, was completed in Dec 2019. The acquisition was financed through a combination of the proceeds from the S$300m of perpetual securities, proceeds from the private placement of 156,645,000 units at an issue price of S$1.050 per unit and debt. The manager expects DPU accretion of 1.6% for this deal and an implied NPI yield of 5.6%. After factoring this development in our model, our fair value estimate increases slightly from S$1.10 to S$1.13. Maintain HOLD.

Source: OCBC Research - 13 Jan 2020