Healthy Metrics; on Recovery Path; Prefer FCT

• SPH REIT (SGX:SK6U)’s portfolio occupancy at 98.8% in 1Q22 was stable q-o-q and rose y-o-y from 97.9%, underpinned by higher occupancy at its Singapore assets and recovering tenant sales, while its WALE remains healthy at 5.5/2.9 years by NLA/gross rental income. The REIT is bound by a chain offer, resulting from its sponsor’s ongoing M&A exercise and as such DPU was not disclosed.
• We see improving performance into FY22, and maintain our forecasts and DDM-based target price (COE: 7.2%, LTG: 1.5%). Stay at HOLD.
• Risks are on the upside given acquisition catalyst, but deal visibility remains low as the sponsor’s restructuring is underway.

Occupancy of Singapore Assets Rose to 99.8%

• Occupancy for SPH REIT's Singapore assets rose to 99.8% in 1Q22 (from 98.9% in FY21), due to higher occupancy at Paragon at 99.7% (from 99.1%) and Rail Mall at 100% (from 92.2%), while it was maintained for Clementi Mall at 99.9%.
• SPH REIT's tenant sales in 1Q22 (at Paragon and Clementi Mall) were at 97% of 1Q21, despite a 6-week dining-in restriction (capped at 2 pax per table, vs 5 pax in 1Q21). At Clementi Mall, tenant sales rose 5% y-o-y and returned to close to pre-COVID levels, due to a stronger tenant mix (new F&B concepts, Decathlon). Easing measures should support recovery, but rental reversions are likely to remain soft.

Occupancy of Australia Assets Resilient, May Improve

• Occupancy at Westfield Marion was maintained 2021 recovered to close to pre-COVID levels, and we expect better fundamentals in FY22, backed by resilient occupancies.

Conservative Balance Sheet, But Low Acquisition Visibility

• SPH REIT’s balance add ~8% to our FY22 estimates. However, we think inorganic growth could take a back-seat to potential restructuring of the sponsor.

• We prefer Frasers Centrepoint Trust (SGX:J69U) for its concentrated suburban mall portfolio.

Source: Maybank Kim Eng Research - 10 Jan 2022