SPH REIT - OCBC Investment 2016-04-05: Continued stability

SPH REIT SK6U.SI

SPH REIT: Continued stability

SPH REIT reported a stable set of 2QFY16 results which met our expectations.
Gross revenue inched up 1.2% YoY to S$53.1m, while NPI increased by a smaller magnitude of 0.9% to S$40.6m largely due to a one-off provision for prior year property tax based on the assessment received. Excluding this impact, SPH REIT’s NPI would have increased 3.2% YoY.
DPU of 1.40 S cents was on par with 2QFY15.
For 1HFY16, SPH REIT’s gross revenue grew 2.0% to S$105.2m, forming 49.8% of our FY16 forecasts. DPU was flat at 2.73 S cents, and constituted 49.6% of our full-year projections.

Portfolio occupancy for SPH REIT remained firm, as The Clementi Mall (TCM) was fully leased, while Paragon was also nearly fully occupied (99.9%), as at 29 Feb 2016.
Management continued to fine-tune its tenancy mix at Paragon, and added new tenants such as Diesel, Dutch Baby Café and GOCCO. It achieved positive rental reversions of 4.3% for the entire portfolio in 1HFY16.
Paragon saw a rental uplift of 4.3%, which is encouraging as it represented a significant 22.5% of the mall’s NLA.
Rental reversions for TCM came in at 3.1% in 1HFY16.
Looking ahead, SPH REIT has minimal leasing risks for the remainder of FY16, as it has only 1.2% and 0.4% of leases due for renewal (as a percentage of gross rental income) for Paragon and TCM, respectively.
Management updated us that it has already started engaging its tenants on negotiations for leases expiring in FY17 (30.5% of gross rental income).

SPH REIT’s balance sheet remained healthy, as its gearing ratio was maintained at 25.7%, with 84.7% of its S$850m debt facility on a fixed rate basis (as at 29 Feb 2015).
It has S$250m of debt maturing in Jul this year, and management is already in negotiation with several potential lenders on refinancing this tranche.
We maintain our forecasts, HOLD rating and S$0.99 fair value estimate on SPH REIT given this in-line set of results.

Wong Teck Ching Andy CFA OCBC Securities | http://www.ocbcresearch.com/ 2016-04-05

OCBC Securities SGX Stock Analyst Report HOLD Maintain HOLD 0.99 Same 0.99