SPH REIT - CIMB Research 2017-04-10: 2QFY17 Clementi renewal cycle almost completed

SPH REIT - CIMB Research 2017-04-10: 2QFY17 Clementi renewal cycle almost completed SPH REIT SK6U.SI

SPH REIT - 2QFY17 Clementi renewal cycle almost completed

  • 1HFY8/17 DPU of 2.74 Scts (+0.4% yoy) was in line with consensus and our expectations at 49% of our full-year forecast. 2QFY17 DPU was at 49%.
  • Portfolio occupancy remained full and there was a positive portfolio rental reversion of 6.2% for 1HFY17.
  • Second renewal cycle of The Clementi Mall more or less completed. Tenant retention at the mall was 90% in 1HFY17, indicating strong endorsement.
  • A low gearing of 25.7% should enable the trust to explore inorganic growth opportunities.
  • Maintain Hold but raise our DDM-based target price to S$1.01.



SPHREIT reported DPU of 1.40 Scts (flat yoy) for 2QFY17 

  • 2QFY17 revenue grew 1.7% yoy while NPI was 5.2% higher yoy due to lower utilities and property tax. 
  • Excluding one-off provision of the prior year’s property tax, NPI improvement would have been 2.9% yoy. 
  • Income available for distribution increased 2.4% yoy while distribution to unitholders increased 0.6% yoy as 4.2% of available distribution was retained. 
  • We note that the manager has elected for partial payment in cash (S$1.2m) for 3QFY17. 100% of management fees for 1HFY17 were paid in units.


Positive portfolio rental reversion of 6.2% 

  • Portfolio occupancy remained full and there was a positive portfolio rental reversion of 6.2% for 1HFY17 (1QFY17: +4.6%). Paragon achieved +4.3% reversion for 7.2% of its NLA in 1HFY17; The Clementi Mall achieved +8.3% reversion for 23.1% of its NLA or 30% of the second renewal cycle. 1HFY17 visitor traffic remained steady.


Second renewal cycle for The Clementi Mall almost completed 

  • With 85% of The Clementi Mall’s leases expiring in FY17 (by GRI), 74% has been renewed ahead of time as at 1HFY17. 
  • At this juncture, we understand that verbal agreements have been reached for the remaining 11%. Tenant retention at The Clementi Mall was 90% by NLA. Judging from the towers, we also observe management’s efforts to smoothen the lease expiry profile for the mall. 
  • Meanwhile, 3.2% of Paragon’s leases (by GRI) are up for renewal in the remainder of FY17.


Capital management 

  • SPHREIT’s healthy balance sheet should enable the trust to explore inorganic opportunities. 
  • As at 1HFY17, SPHREIT has a gearing of 25.7% and weighted average debt tenure of 2.6 years. Average cost of debt for 1HFY17 was 2.79% (1HFY16: 2.84%).
  • 85.9% of total borrowing was on a fixed rate basis.


Maintain Hold with a higher target price 

  • We keep our FY17-19F DPU but raise our DDM-based target price to S$1.01, following a sector-wide decrease in our Singapore discount rate. 
  • Maintain Hold on limited near-term upside. 
  • Upside/downside risks hinge on the retail environment and leasing activities.




YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2017-04-10
CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 1.01 Up 0.950



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