SPH REIT (SGX:SK6U)
SPH REIT - In Need Of A Sizeable Deal
DPU in line, maintain HOLD, prefer FCT
- SPH REIT (SGX:SK6U)'s 4Q19 DPU up 2.1% y-o-y, was in line with consensus and our estimate, bringing 12M19 to 99.2% of our full year.
- Looking ahead, contributions from earlier deals and rental recovery at Paragon should support DPUs. Valuation at 5.1% dividend yield on muted organic growth is unexciting. Reiterate HOLD with 5% higher DDM-based Target Price of SGD1.10 (COE 6.6%, LTG 1.5%) after DPU adjustments and rolling over to FY20. See SPH REIT's share price; SPH REIT dividend history.
- A sizeable overseas acquisition would be a positive catalyst, given limited DPU-accretive opportunities in Singapore.
- For now, we prefer FRASERS CENTREPOINT TRUST (SGX:J69U) (BUY, Target Price SGD2.80) for its stronger 4.0% 3-year DPU CAGR.
Better performance across all assets
- SPH REIT's revenue and NPI rose 10.2% y-o-y and 11.8% y-o-y in 4Q19, mainly due to acquisitions – Rail Mall (completed on 28 Jun 2018) and the 85% interest in Figtree Grove (on 21 Dec 2018). Its portfolio occupancy was stable at 99.1% - all properties were at nearly full occupancies except for Rail Mall at 84.3%. See SPH REIT's announcements.
- Meanwhile all properties saw better tenant sales on the back of stronger shopper traffic across its Singapore assets. Portfolio rental reversion in Singapore was strong at +9.4% for FY19, led by Paragon at +9.7% and Rail Mall at +9.4%. This supported stronger 1.0-45.7% y-o-y and 3.4-33.5% y-o-y jumps in revenue and NPI across all malls.
- We forecast rents at Paragon to rise by 3-5% in FY20-21E given tight Orchard Road supply and to support further positive rental reversions. Sales growth outlook for its tenants are capped by falling tourism shopping receipts.
High debt headroom, now awaiting deals
- Its aggregate leverage improved from 30.1% to 27.5% as of end-Aug 2019, following its SGD300.0m, 4.1% perps issuance. Investors are now awaiting ore sizeable growth opportunities with its increased SGD1.2b debt headroom.
- Management is keen to expand in Australia, while Seletar Mall remains its primary potential sponsored deal in Singapore. This could add 5-8% to FY20-21 DPU, assuming a fully debt-funded deal.
Waiting for acquisition catalyst; HOLD
- SPH REIT’s AUM is up 6.8% y-o-y due to its first overseas acquisition, but trails growth of its peers CAPITALAND MALL TRUST (SGX:C38U) at +12% and FRASERS CENTREPOINT TRUST (SGX:J69U) at +16% in the past 12 months.
- The strong debut of peer LENDLEASE GLOBAL COMMERCIAL REIT (SGX:JYEU) on 3 Oct 2019 suggests investors continue to chase yields – it now offers 5.5% on the IPO’s projected DPU. See Lendlease REIT's share price.
Chua Su Tye
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2019-10-11
SGX Stock
Analyst Report
1.10
UP
1.050
