SPH REIT (SGX:SK6U)
SPH REIT - Australian Boost
SPH REIT's 1H21 DPU in line, maintain HOLD
- SPH REIT (SGX:SK6U)'s 1H21 was in line (both MKE and consensus), with revenue up 4.9% y-o-y/ +29.5% h-o-h, NPI +1.3% y-o-y/+33.7% h-o-h, and DPU +45.2% y-o-y/+134.6% h-o-h.
- Performance was largely driven by the Westfield Marion in Adelaide, Australia, acquired in Dec 2019.
- We see a slow pick-up in tenant sales at Paragon as tourism spend remains depressed by tight border controls. Its operational weakness will likely persist beyond FY21 as Singapore’s retail recovery gains traction.
- We maintain forecasts and DDM-based S$0.80 target price (COE: 7.8%, LTG: 1.5%) for SPH REIT. Stay at HOLD.
- We prefer Frasers Centrepoint Trust (SGX:J69U) for its more resilient suburban mall portfolio.
Singapore occupancies have held up
- Revenue / NPI rose 41.7% y-o-y/ 50.4% y-o-y for Paragon and 34.4% y-o-y/ 49.3% y-o-y for Clementi Mall, but declined between 3.0- 10.7% h-o-h.
- SPH REIT's Singapore occupancy was stable at 98.0% (from 97.9% in 1Q21) with a dip at Paragon (from 98.0% to 97.1%) offset by an improvement at Clementi Mall (from 99.6% to 100%).
- Rental reversion rose +0.4% for its Singapore assets, from Paragon (at +1.3%), Clementi (-7.8%), and Rail Mall (+5.4%), and an improvement from negative territory in 1Q21, which suggests that the retail sector recovery is underway.
Australia leading recovery
- SPH REIT's Australian properties improved in 1H21 with revenue up 68.2% y-o-y/+6.9% h-o-h, while NPI rose 62.2% y-o-y/-1.0% h-o-h. Tenant sales likely recovered close to pre-Covid levels (although it did not provide these metrics) and should improve in the coming months.
- Figtree Grove’s suburban residential catchment supports its fundamentals while Westfield Marion is a strong destination asset, with visibility from favourable lease structures, as the majority of specialty tenant leases are embedded with pa rental escalations at CPI plus an additional 2.0-2.5% spread.
Some cost savings, sound balance sheet
- A refinancing of its S$215m borrowing due in Jul 2021 to a new term of five years reduced SPH REIT's borrowing costs by 29.6% y-o-y/26.2% h-o-h. Its leverage remains low at 30.4%, suggesting a S$400-800m debt headroom (at 40- 50% limit).
- SPH REIT's management believes its operations have stabilised and expect to restart its acquisition growth efforts (in Australia).
- See SPH REIT Share Price; SPH REIT Target Price; SPH REIT Analyst Reports; SPH REIT Dividend History; SPH REIT Announcements; SPH REIT Latest News.
Chua Su Tye
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2021-03-30
SGX Stock
Analyst Report
0.800
SAME
0.800
