SPH REIT
SK6U.SI
SPH REIT - Resilient Results
- 3QFY16 DPU 1.36 Sct up 0.7%, in line with our expectations
- Positive rental reversion of 4.9%, however, shopper traffic declined 2.2%
- Outlook stable, maintain HOLD.
Stock is fairly priced.
- We currently have a HOLD recommendation, with TP of S$0.99. SPH REIT's dividend yield of 5.9% reflects the strength of its assets and stability of earnings. However, at this point we believe that comparable retail S-REITs offer more attractive yields.
Paragon to continue to drive earnings growth.
- We believe that Paragon will continue to outperform the rest of Orchard Road for both retail and office assets, due to its
- location and frontage in the prime Orchard Road shopping district, as well as
- proximity to the Mount Elizabeth medical cluster.
- As such, we assume reversions of 3.5-4% for Paragon.
- At Clementi Mall, despite the Sponsor’s income support, upside to rents in the near term appears limited due to minimal lease expiries until 2017.
Potential acquisition a catalyst.
- With a healthy gearing of 26% and cost of debt of 2.84%, SPH REIT is well poised for debt- funded acquisitions. The next growth catalyst for the REIT will be the acquisition of the Sponsor’s 70% stake in Seletar Mall. However, we believe this acquisition is likely to be more of a medium term prospect, as the mall was only completed in Dec 2014 and is still on its first lease cycle.
Valuation:
- We have a DCF-backed target price of S$0.99, implying a dividend yield of 5.9-6.0% for FY16-17F. Due to the lack of near-term catalysts and limited upside to TP, we maintain our HOLD call.
Key Risks to Our View:
- Rise in interest costs. SPH REIT’s all-in cost of debt stands at 2.84%, with c.85% of borrowings in fixed rates. In a rising interest rate environment, we will monitor closely the refinancing of its floating-rate tranche of S$250m (c.30% of total debt) due in July 2016.
Derek Tan
DBS Vickers
|
http://www.dbsvickers.com/
2016-07-08
DBS Vickers
SGX Stock
Analyst Report
0.99
Same
0.99
