SPH REIT - CGS-CIMB Research 2021-03-29: Moving Towards A Recovery

SPH REIT (SGX:SK6U)

SPH REIT - Moving Towards A Recovery

SPH REIT’s 1HFY21 DPU of S$0.0244 (+45.2% y-o-y, 2Q: +3.3% q-o-q) came in at 43% of FY21F DPU but we deem this to be in line.
Its Singapore portfolio reported +0.4% rental reversion despite COVID-19; occupancy rate remained high at 97-100%.
Reiterate ADD. Encouraging tenant sales and positive vaccine development point towards a recovery.

SPH REIT (SGX:SK6U)’s 1HFY21 (Sep 2020 to Feb 2021) revenue grew by 4.9% y-o-y to S$140m while NPI improved 1.3% y-o-y to S$104.9m, coming in at 49.6% of our full-year forecast.
The stronger results were mainly driven by the full-year acquisition of Westfield Marion (completed in Dec 2019) vs 3-months income contribution last year. This, together with the better performance from The Rail Mall (+10.3% y-o-y) and Figtree (+4.6% y-o-y), helped to offset the weaker revenue from Paragon (-8% y-o-y) and The Clementi Mall (-3.1% y-o-y).
As a whole, Singapore revenue declined 6.7% y-o-y while Australia revenue jumped 68.2% y-o-y. The weaker Singapore revenue was mainly due to rental relief granted to tenants.
SPH REIT's 1HFY21 DPU of S$0.0244 grew 45.2% y-o-y (2Q: +3.3% q-o-q) given the low base effect last year as the REIT retained income due to COVID-19. 1HFY21 DPU came in at 43% of our FY21F forecast due to lower dividend payout ratio of 88% vs our full-year assumption of 95%. We deem this to be in line as we expect SPH REIT to release more income as operating environment improves.

The Rail Mall and The Figtree’s occupancy remained stable q-o-q at 99-100%. Despite COVID-19, Clementi Mall and Westfield Marion saw occupancy improve by 0.4% points and 0.6% points q-o-q to 100% and 97.9%, respectively. Only Paragon reported a slight drop of 0.9% points q-o-q in occupancy to 97.1%.
SPH REIT's 1HFY21 Singapore portfolio rental reversion was flat at +0.4%. While Paragon and The Rail Mall delivered positive rental reversion of +1.3% and +5.4%, the Clementi Mall reported -7.8% rental reversion on 15,930 sqft of leases which represents a relatively small 8.2% of total mall NLA.
While Paragon’s tenant sales in Jan-Feb 2021 continued to be lower vs 2019, it was well supported by local consumption. The Clementi Mall, Westfield Marion and Figtree’s tenant sales in Jan-Feb 2021 tracked closely to prior years before COVID-19.

We maintain our FY21-23F DPU forecast and reiterate ADD on SPH REIT. We see easing rental pressure going forward in view of the encouraging tenant sales and positive development of vaccines. Easing workplace capacity limits would also help to increase traffic flow at the Paragon, further supporting tenant sales.
SPH REIT is trading below book and > 6% yield.
See SPH REIT Share Price; SPH REIT Target Price; SPH REIT Analyst Reports; SPH REIT Dividend History; SPH REIT Announcements; SPH REIT Latest News.
Upside/downside risks include better-/worse-than-expected impact from COVID-19.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2021-03-29

SGX Stock Analyst Report ADD MAINTAIN ADD 1.060 SAME 1.060