SPH REIT's 3Q21 DPU in Line, Maintain HOLD

• SPH REIT (SGX:SK6U)’s 3Q21 DPU rose 11.3% q-o-q on the back of recovering fundamentals, underpinned by its suburban Singapore assets and resilient Australian malls. Paragon, at ~56% of revenue and 64% of its AUM, remains weak, with negative rental reversions to persist, given slow tenant sales and absent tourism spend. The numbers were in line and we maintain our forecasts and DDM-based S$0.80 target price (COE: 7.8%, LTG: 1.5%).
• Stay at HOLD for SPH REIT.
• We prefer Frasers Centrepoint Trust (SGX:J69U) for its concentrated suburban mall portfolio.

Singapore Portfolio Supported by Suburban Malls

• SPH REIT's portfolio occupancy rose q-o-q from 98.0% to 98.4% due to the better performance of its suburban assets, with Clementi Mall and Rail Mall both fully occupied.
• While revenue at Paragon jumped ~151% y-o-y in 3Q21 with the easing of rent relief provisions, it fell ~9% q-o-q on the back of weaker rental reversions. Its tenant sales fell to ~40% below pre-Covid levels in May, from Singapore’s ‘heightened alert’ capacity restrictions but should rise as they get eased from 4Q21. Its expiring leases in FY22 at 29% of gross rental income, are attributed to smaller specialty and luxury names, as leases for its anchors Metro and M&S have already been renewed.

Australia Assets Resilient, Possible AEI Upside

• SPH REIT's Australian malls fared better as revenue rose spread, and SPH REIT's management is likely eyeing a potential AEI to lift the property’s yield.

Conservative Balance Sheet

• SPH REIT's balance sheet remains conservative with low funded deal for the S$480m asset could add ~8% to our FY22 estimates.

Source: Maybank Kim Eng Research - 13 Jul 2021