SPH REIT - CIMB Research 2016-10-07: Steadily growing

SPH REIT - CIMB Research 2016-10-07: Steadily growing SPH REIT SK6U.SI

SPH REIT - Steadily growing

  • 4QFY16 performance underpinned by higher revenue and better operating margins.
  • Positive rental reversion of 5.4% across portfolio on full occupancy.
  • Slight slowdown in shopper traffic and tenant sales, led to an uptick in occupancy cost.
  • AEIs and potential new acquisitions could provide medium-term upside, in our view.
  • Maintain Hold with a slightly higher target price of S$1.05.

4QFY16 results were within our and street expectations 

  • SPHREIT’s 4QFY16 / FY16 performance was within expectations. 
  • Gross revenue rose 2.7% yoy to S$52.2m (US$38.4m), while income distributed rose 2.1% yoy to S$35.9m (US$26.4m) on improved operating performance and higher margins thanks to cost savings. This translated to a 4QFY16 DPU of 1.41 Scts, +3.9% yoy. 
  • For FY16, the group achieved distribution income of S$139.7m (US$102.7m) or 98% of our full-year forecast.

Achieved positive rental reversion of 5.4% for FY16 

  • Portfolio occupancy remained full and there was a positive rental reversion of 5.4% over preceeding levels across the portfolio, of which Paragon achieved 5.2% higher rentals on 34.2% of the space renewed in FY16. 
  • The Clementi Mall renewed 11.9% of its space with a 7.8% improvement in rents over preceding levels. This bodes well, in our view, for the 46.7% and 59.5% of the NLA that are due to be re-contracted in FY17-18 at Paragon and Clementi Mall, respectively.

Occupancy costs rose marginally 

  • Tenant sales at Paragon inched up by 0.3% yoy in FY16 despite a 2.5% yoy dip in shopper footfall, while The Clementi Mall saw a 1.4% yoy retreat in tenant sales with shopper traffic slowing by 2.4% yoy. Nonetheless, spending per shopper headcount remained relatively steady yoy, demonstrating the resilience of these two properties. As a result, occupancy costs for Paragon and Clementi Mall inched up to 19.6% and 14.8% yoy, respectively.

AEI and new acquisitions could spur further upside 

  • Looking ahead, we believe ongoing asset enhancement initiatives, such as decanting and conversion of 7000sf of back-of-house space at Paragon, and creating a more efficient layout at Clementi Mall, while also increasing the number of food kiosks there, should lift revenue marginally over the next two years. 
  • In addition, with a low gearing of 25.7%, the trust is well placed, in our view, to explore inorganic growth opportunities, such as potential acquisition of the Seletar Mall, which is majority owned by its Sponsor.

Maintain Hold 

  • Post results, we fine-tune our FY17-18F DPU and introduce FY19F estimates. 
  • Our DDM-based target price is raised marginally to S$1.05 (5.7% FY17F DPU yield) as we roll forward our valuation to FY17F. 
  • We maintain our Hold rating based on limited upside and believe the acquisition of Seletar Mall would likely be a share price catalyst in the medium term. 
  • Upside risk to our view would be new acquisitions which are not factored into our forecasts, while downside risk is slower-than-projected rental reversions.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2016-10-07
CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 1.05 Up 1.030