SPH REIT - DBS Research 2017-12-13: A Longer Wait

SPH REIT - DBS Vickers 2017-12-13: A Longer Wait SPH REIT SK6U.SI

SPH REIT - A Longer Wait

  • SPH REIT's share price jumped 5% in one month on speculation of acquisition of The Seletar Mall.
  • Timing of acquisition expected to be later than initially believed.
  • Downgrade to HOLD as price is close to our TP.



Resilient performer; downgrade to HOLD on valuation. 

  • SPH REIT’s earnings are resilient, supported by sticky occupancies while its low gearing of c.26% empowers the Manager to potentially undertake value accretive acquisitions. 
  • We upgraded the REIT in March 2017 on the back of potential acquisition of The Seletar Mall. The stock price went up by 5% in October as the completion of first rental renewal cycle of the mall boosted market sentiment that an acquisition was around the corner. 
  • As SPH REIT’s share price is now close to our TP, we downgrade our call to HOLD.


Where we differ: 


Timing of The Seletar Mall acquisition is later than consensus. 

  • We have pushed the timing of the acquisition of The Seletar Mall to the end of FY18F, i.e. Sep/Oct 2018, whereas the market has priced in an earlier acquisition. As a result, our FY18F DPU forecast is 8% lower than the consensus average.


Potential Catalyst: 


The Seletar Mall to drive higher growth. 

  • With The Seletar Mall, SPH REIT will derive a higher proportion of its income from suburban shopping malls (rising from 20% to 32%), which enhances the portfolio’s resilience.


Valuation

  • Maintain DCF-backed TP of S$1.07. 
  • The stock offers a dividend yield of close to 5.5% and price upside potential of 2%.
  • Downgrade to HOLD due to total potential return < 10%.


Key Risks to Our View


Timing and price of The Seletar Mall acquisition. 

  • We have factored in contributions from The Seletar Mall from FY19F.
  • Later-than-projected timeline or higher purchase price implies downside to our estimates.





Singapore Research DBS Vickers | Derek TAN DBS Vickers | Mervin SONG CFA DBS Vickers | http://www.dbsvickers.com/ 2017-12-13
DBS Vickers SGX Stock Analyst Report HOLD Downgrade BUY 1.070 Same 1.070



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