SPH REIT - OCBC Investment 2017-01-12: No surprises in 1QFY17

SPH REIT SK6U.SI

SPH REIT - No surprises in 1QFY17

SPH REIT reported an in-line set of 1QFY17 results. Gross revenue increased 0.9% YoY to S$52.6m and formed 24.3% of our FY17 forecast.
This was largely driven by higher rental income achieved at Paragon as revenue from The Clementi Mall (TCM) was flat YoY.
NPI grew at a stronger pace of 3.3% to S$41.4m as SPH REIT benefited from savings in utilities from lower tariff rates and a decline in maintenance expenses.
Although income available for distribution grew 3.0% YoY to S$36.4m, DPU only rose 0.8% to 1.34 S cents, as S$2.2m of taxable income available for distribution was retained, implying a distribution payout ratio of 94.0% for the quarter. This formed 24.0% of our FY17 forecast.
We believe a portion of the income retained could be distributed to unitholders in subsequent quarters.

Both Paragon and TCM delivered positive rental reversions of 4.4% and 9.1%, respectively, although the latter comprised only three leases which form 0.7% of the mall’s NLA. Overall portfolio rental reversion came in at 4.6%.
Another positive highlight came from the fact that both malls remained fully occupied, which we believe is a reflection of SPH REIT’s resilience. According to SPH REIT, its 1QFY17 visitor traffic remained steady at 12.0m.
Management continued its efforts to refresh its tenant mix to enhance shoppers’ experience. Paragon opened its doors to the famous Greyhound Café from Thailand, its first outlet in Singapore. Puma also launched its new concept store at the mall. For TCM, its eatery cluster was revamped and opened in November last year.

In terms of financial position, SPH REIT’s gearing remained stable and healthy at 25.7%, as at 30 Nov 2016. 85.9% of its debt is on a fixed rate basis and it has no refinancing requirements until 2018.
Given this in-line set of results, we maintain our forecasts and BUY rating on SPH REIT, but adjust our fair value estimate to S$1.04 from S$1.06, as we adopt a higher riskfree rate assumption of 2.7% (previously 2.4%).

Wong Teck Ching Andy CFA OCBC Investment | http://www.ocbcresearch.com/ 2017-01-12

OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 1.04 Down 1.060