SPH REIT - OCBC Investment 2016-01-06: Stable start to the year

SPH REIT - OCBC Investment 2016-01-06: Stable start to the year SPH REIT SK6U.SI 

SPH REIT: Stable start to the year 

 1QFY16 DPU flat YoY at 1.33 S cents 
 Portfolio rental reversion of 3.2% 
 Near-full portfolio occupancy 

1QFY16 results within our expectations 

  • SPH REIT reported a steady set of 1QFY16 results which met our expectations. Gross revenue rose 2.9% YoY to S$52.1m and constituted 24.6% of our full-year forecast. 
  • NPI was up by a stronger 5.9% to S$40.1m due to savings in utilities and lower marketing expenses, but partially offset by higher property taxes and other premises cost. 
  • Although SPH REIT’s income available for distribution grew 3.8% YoY to S$35.3m, DPU was flat at 1.33 S cents, as S$1.6m of taxable income available for distribution was retained, implying a distribution payout ratio of 95.4% for the quarter. This formed 24.2% of our FY16 forecast. 
  • We believe a portion of the income retained could be distributed to unitholders in subsequent quarters. 

Portfolio rental reversion moderated to 3.2% 

  • Both Paragon and The Clementi Mall (TCM) achieved positive rental reversions of 3.2% and 5.4%, respectively, although the latter comprised only one lease which forms 0.2% of the mall’s NLA. 
  • Overall portfolio rental reversion came in at 3.2%, and was a moderation from the 8.6% attained in FY15. Paragon’s occupancy was 99.8%, while TCM was fully leased, as at 30 Nov 2015. Paragon added several international retailers, which includes Loewe, Ralph Lauren Children and APM Monaco. 
  • We see minimal leasing risks for SPH REIT in FY16, as it has only 3.3% of expiries (as a percentage of gross rental income) for the remainder of the financial year. 

Strong balance sheet; reiterate HOLD 

  • SPH REIT’s balance sheet remained strong, with a low gearing ratio of 25.7%, similar to the previous quarter. 84.7% of its S$850m debt facility is on a fixed rate basis, which we believe helps to mitigate the risks in a rising interest rate environment. 
  • We retain our projections given this in-line set of results. 
  • Maintain HOLD and S$0.99 fair value estimate on SPH REIT as we see limited potential total returns ahead. The stock is trading at FY16F P/B ratio of 1.01x and distribution yield of 5.8%. 

Wong Teck Ching Andy OCBC Securities | http://www.ocbcresearch.com/ 2016-01-06
OCBC Securities SGX Stock Analyst Report HOLD Maintain HOLD 0.99 Same 0.99