SPH REIT
SK6U.SI
SPH REIT - A Longer Wait
- SPH REIT's share price jumped 5% in one month on speculation of acquisition of The Seletar Mall.
- Timing of acquisition expected to be later than initially believed.
- Downgrade to HOLD as price is close to our TP.
Resilient performer; downgrade to HOLD on valuation.
- SPH REIT’s earnings are resilient, supported by sticky occupancies while its low gearing of c.26% empowers the Manager to potentially undertake value accretive acquisitions.
- We upgraded the REIT in March 2017 on the back of potential acquisition of The Seletar Mall. The stock price went up by 5% in October as the completion of first rental renewal cycle of the mall boosted market sentiment that an acquisition was around the corner.
- As SPH REIT’s share price is now close to our TP, we downgrade our call to HOLD.
Where we differ:
Timing of The Seletar Mall acquisition is later than consensus.
- We have pushed the timing of the acquisition of The Seletar Mall to the end of FY18F, i.e. Sep/Oct 2018, whereas the market has priced in an earlier acquisition. As a result, our FY18F DPU forecast is 8% lower than the consensus average.
Potential Catalyst:
The Seletar Mall to drive higher growth.
- With The Seletar Mall, SPH REIT will derive a higher proportion of its income from suburban shopping malls (rising from 20% to 32%), which enhances the portfolio’s resilience.
Valuation
- Maintain DCF-backed TP of S$1.07.
- The stock offers a dividend yield of close to 5.5% and price upside potential of 2%.
- Downgrade to HOLD due to total potential return < 10%.
Key Risks to Our View
Timing and price of The Seletar Mall acquisition.
- We have factored in contributions from The Seletar Mall from FY19F.
- Later-than-projected timeline or higher purchase price implies downside to our estimates.
Singapore Research
DBS Vickers
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Derek TAN
DBS Vickers
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Mervin SONG CFA
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http://www.dbsvickers.com/
2017-12-13
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SGX Stock
Analyst Report
1.070
Same
1.070
