SPH REIT (SGX:SK6U)
SPH REIT - Slow Recovery Amid A Protracted COVID-19
- SPH REIT (SGX:SK6U)'s 4QFY20/FY20 DPU fell 63%/51% y-o-y.
- S$14.5m of FY20 income available for distribution was deferred.
- Tenant retention and supports remain the key focus.
SPH REIT's FY20 results below expectations
- SPH REIT (SGX:SK6U)’s FY20 results came in below Bloomberg consensus’ and our expectations on deferred income, and rental reliefs. Gross revenue grew 5.6% y-o-y to S$241.5m and net property income (NPI) increased marginally by 1.2% y-o-y to S$181.9m. The growth was largely driven by the acquisition of Westfield Marion in Dec 2019 and Figtree Grove in Dec 2018, but partially offset by the S$31.8m of rental waivers and reliefs provide to eligible tenants in Singapore.
- Management deferred S$14.5m of FY20 income available for distribution to FY21 and provided S$8.1m for eligible tenants in Australia. In addition, S$15m of capital allowance was utilised for financial flexibility. As such, 4QFY20 DPU fell 63.0% y-o-y to 0.54 S cents.
- For full-year, SPH REIT's FY20 DPU declined 51% to 2.72 S cents, which formed 70% of our forecast.
Positive rental reversion of 5.9% due to pro-active leasing
- As at 31 Aug 2020, SPH REIT’s portfolio occupancy rate remained healthy at 97.7% and recorded positive rental reversion of 5.9%, thanks to SPH REIT’s pro-active leasing strategy.
- We understand from management that SPH REIT typically negotiates and renews leases 6-8 months in advance to mitigate vacancies. Hence, a majority of the leases were renewed/signed before COVID-19.
- SPH REIT’s Singapore assets reported positive rental reversions of 6.4% and high occupancy rate of 97.8%. Separately, SPH REIT’s Australia assets recorded negative rental reversion of 3.2%. However, this is better than management’s projections when they acquired the assets.
COVID-19 weighed on traffic and sales
- Visitor traffic and tenant sales have been adversely impacted by COVID-19 with larger impact seen from Paragon given its focus on luxury brands and heavier reliance on tourists. Paragon’s traffic and tenant sales fell 27.4% and 28.2% y-o-y for FY20. With a protracted COVID-19 and weak travel demand, management intends to attract local consumption to Paragon.
- Performances of The Clementi Mall and Figtree Grove were relatively more resilient given the suburban location of The Clementi Mall and higher percentage of non-discretionary shops for Figtree Grove.
Intention to retain overseas income to build up cash reserve
- We pare our forecasts for FY21 and FY22 DPU by 5% and 13% respectively as we adjust SPH REIT’s dividend payout ratio as the REIT intends to retain some portion of its foreign income to build up its cash reserve to fund expenditures moving ahead and we also expect more tenant support measures in FY21.
- Meanwhile, we decrease our COE from 8.5% to 7.8% given the stabilisation of COVID-19 infections. After adjustments, our fair value estimate increases marginally from S$0.81 to S$0.82.
- See SPH REIT Share Price; SPH REIT Target Price; SPH REIT Analyst Reports; SPH REIT Dividend History; SPH REIT Announcements; SPH REIT Latest News.
Chu Peng
OCBC Investment Research
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https://www.iocbc.com/
2020-10-08
SGX Stock
Analyst Report
0.82
DOWN
1.130
