SPH REIT - CIMB Research 2017-07-13: Steady Performance

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SPH REIT SK6U.SI

SPH REIT - Steady Performance

• Results in line, 3QFY17 DPU forms 24.3% of our FY17F forecast.
• Positive rental reversion of 3.7%, portfolio committed occupancy at 100%.
• Slight addition of NLA at Clementi Mall could provide c.S$0.8m of annual rents.
• Low gearing of 25.6%.
• Maintain Hold, with a slightly higher Target Price of S$1.04.

Results in line 

• The 3QFY17 DPU of 1.37 Scts, +0.7% yoy, was in line with our expectations. This was driven by a 2.1% improvement in revenue to S$53.3m, up 2.1% yoy. 
• NPI rose a higher 5.4% yoy to S$42.2m thanks to proactive management of utility contracts, lower property tax and marketing expenses. 
• For the 9M, DPU rose 0.4% yoy to 4.11 Scts, making up c.73% of our FY17F forecast.

Enjoying positive rental reversions 

• The trust enjoyed positive rental reversion of 3.7% for the 27.6% of portfolio NLA expiring during the quarter. Portfolio committed occupancy remained at 100%. Shopper footfall across both properties was largely stable. 
• Paragon enjoyed a 3.6% rise over preceding rents for the 13.4% of space that was renewed.

Completed Clementi Mall renewal cycle 

• Meanwhile, Clementi Mall completed its second rental renewal cycle, with 80% of its NLA re-contracted at 3.7% higher rents and retention rate of 89%. Some of the new offerings include Royal Sporting House, Owndays and llaollao. Level 4 and basement spaces at the mall were also reconfigured to create additional lettable area. This is expected to add another S$0.8m of rental income annually.

One of the lowest geared S-REITs 

• Looking ahead, the trust has another 20.9% and 20.8% of NLA to be renewed in FY18 and FY19, respectively. 
• We believe SPH REIT would continue to enjoy modest but positive uplifts for these expiries. 
• In addition, with one of the lowest gearing levels amongst S-REITs of 25.6% as at 3QFY17, we believe the trust is well placed to tap acquisition growth opportunities in the medium term.

Maintain Hold 

• We leave our FY17F-19F DPU estimates unchanged but tweak our DDM-target price slightly higher to S$1.04 as we adjust our assumed risk-free rate to 2.5% (previously 2.8%) in tandem with a flattening yield curve. 
• We maintain our Hold recommendation as we await share price catalysts, including potential new acquisitions. 
• Upside risks include new acquisitions and better than expected rental growth while downside risks include slow tenant take-up on renewals.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2017-07-13

CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 1.04 Up 1.010