SPH REIT - OCBC Investment 2021-03-31: Some Recovery But Rental Reliefs Likely To Continue

SPH REIT (SGX:SK6U) | SGinvestors.io SPH REIT (SGX:SK6U)

SPH REIT - Some Recovery But Rental Reliefs Likely To Continue

  • SPH REIT's 2QFY21 DPU rose from S$0.003 to S$0.0124.
  • Australia portfolio was more resilient.
  • Gradual recovery of tenant sales.

In-line set of results

  • SPH REIT (SGX:SK6U)’s 1HFY21 (Sep 2020 to Feb 2021) gross revenue grew 4.9% y-o-y to S$140.0m while NPI was up 1.3% y-o-y to S$104.9m, mainly due to Westfield Marion’s full half-year contribution which was acquired in Dec 2019, but partially offset by weaker performance from SPH REIT’s Singapore portfolio.
  • SPH REIT's distribution to unitholders for 1HFY21 was S$67.8m (at 89% payout ratio) which included the release of S$7.3m of FY20 distributable income deferred.
  • Recall that S$14.5m of SPH REIT's distributable income or DPU of S$0.0052 in FY20 was deferred to FY21 as part of the COVID-19 support measures by IRAS. As such, 2QFY21 DPU came in at S$0.0124 as compared to S$0.003 in the same period last year, which was in-line, at 24% of our initial full-year estimate.

Rental reversions of 0.4% for Singapore assets

  • SPH REIT's portfolio occupancy remained healthy at 98.0% (-0.9 ppt y-o-y).
  • As for rental reversions, SPH REIT's Singapore assets reported 0.4% of rental reversions, helped by the Rail Mall (+5.4%) and Paragon (+0.3%). Management attributed the positive rental reversions at these two malls to improving sentiment and outlook. Rental reversion for The Clementi Mall, however, was down 7.8%, due to new leases signed by some smaller retail tenants with lower starting rent in the first year (with step-up rent structure) to help the tenants tide over the difficult period.

Australia portfolio led the recovery in tenant sales

  • We saw recovery in tenant sales with Australia’s portfolio leading the recovery. Overall, SPH REIT’s Australia portfolio remained more resilient than that of Singapore as the location of the two assets in Australia are less reliant on tourist spending.
  • Among SPH REIT’s Singapore portfolio, Paragon (62% of FY20 NPI) remained under pressure, impacted by border closures and low tourist arrivals. On the other hand, the Clementi Mall performed better due to its suburban location and relaxation of social distancing.
  • Management expects rental reliefs to continue this year, especially to the tenants at Paragon as it takes time for the border to reopen.
  • We maintain our fair value estimate at S$0.88 for SPH REIT.
  • 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 | https://www.iocbc.com/ 2021-03-31
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.880 SAME 0.880