SPH REIT (SK6U.SI) is a Singapore-listed retail real estate investment trust with a real estate portfolio in Singapore and Australia. It currently owns the Paragon Mall, The Clementi Mall, The Rail Mall in Singapore and a stake in Figtree Grove Shopping Centre in Australia.

Overview:

(+) Healthy credit profile

(+) Properties with high occupancy rates provide stable income

CREDIT VIEW

(+) Healthy credit profile – As at 31 May 2019, the REIT’s gearing ratio stood at 30.1%, below its peers’ average. Its average cost of debt was 2.89% and net interest coverage was at a healthy 6.0x, higher than its peers’ average. The current low-interest rate environment, coupled with the REIT’s low gearing and high debt headroom of almost SGD1bn, provide a conducive environment for future acquisitions in Australia and Singapore.

Debt maturities are staggered evenly over the next few years, with the weighted average term to maturity standing at 1.8 years. As at 31 May 2019, 70% of loans were secured at fixed rates, reducing interest rate risk.

(+) Properties with high occupancy rates provide stable income – As at 31 May 2019, overall portfolio occupancy was at 99% with positive rental reversions stable at 8.4% YTD. Paragon and The Rail Mall enjoyed positive reversions of 8.6% and 9.1% respectively. The REIT also posted a 4.4% y-o-y growth in shopper traffic across its Singapore portfolio.

The REIT’s portfolio lease expiry is evenly spread out over the next few years, allowing for more stable positive rental reversions as leases expire and require renewals.

Majority of leases in Paragon, the highest contributor to net property income, were recently renewed. Upcoming lease expiries include 70% of leases for The Clementi Mall is due in FY20, 80% for The Rail Mall due in FY19-20F and 14% for Figtree Grove Shopping Centre due in 4QFY19. These are opportunities for positive rental reversions and optimizing tenant mix.

Source: Phillip Capital Research - 21 Aug 2019