SPH REIT
SK6U.SI
SPH REIT - Limited catalysts
- FY8/15 earnings aided by better cost management.
- Sustainable improvement in NPI margins, with updating of older M&E equipment.
- Paragon and Clementi Mall still enjoyed higher shopper footfall.
- Positive rental reversions and AEI to boost forward earnings.
- Maintain Hold call, with an unchanged DDM-based target price of S$1.07.
■ FY15 earnings aided by better cost management
- SPH REIT’s FY15 NPI rose 3% yoy due to better cost management and a 1% improvement in topline. This was despite the loss of income during Paragon’s fitting-out periods, which were part of its tenancy revitalisation programme.
- The trust’s book NAV rose to S$0.95 thanks to revaluation gains from Paragon.
■ More efficient cost management boosted NPI in FY15
- NPI margin rose to 75.9% in FY15 (FY14: 74.5%), thanks to savings in utilities (from lower tariff rates and more efficient consumption by new chillers) and lower maintenance costs, partly offset by higher property taxes and marketing expenses.
- We expect the improved margins to be sustained going forward.
■ Higher footfall at both malls
- In terms of operations, Paragon saw a 2% yoy rise in visitor traffic for FY15 but tenant sales dipped by 3.2% yoy. Hence, occupancy costs rose to 19% in FY15.
- Meanwhile, the Clementi Mall saw a 3.6% yoy rise in FY15 tenant sales and a corresponding 4.7% rise in shopper traffic, with occupancy costs at 14.6%. Businesses in the latter that continue to do well include the supermarket, F&B and lifestyle sectors.
■ Positive rental reversion and AEI to boost earnings
- We expect SPH REIT to continue enjoying positive rental reversions, with 9.8% and 31.9% of rental income (mainly from Clementi Mall) due to be renewed in FY16 and FY17, respectively.
- Current occupancy cost at Clementi Mall is below the 16-18% range of its peers.
- In addition to higher rents, decanting 7,000 sqf of space from replacement of Paragon’s air-handling unit will increase leasable area gradually in Sep 2015-Mar 2018 and boost rental income. Gearing remains low at 25.7% at end-FY15.
■ Maintain Hold rating
- Given the limited potential catalysts, we maintain our Hold rating and DDM-based target price of S$1.07. SPH Reit trades at 1x FY15 P/BV and offers investors FY16 DPU yield of 5.8%, in line with its S-REIT peers.
- We would revisit the stock once the acquisition of the fully-occupied Seletar Mall is completed.
LOCK Mun Yee
CIMB Securities
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http://research.itradecimb.com/
2015-12-09
CIMB Securities
SGX Stock
Analyst Report
1.07
Same
1.07
