SPH REIT - Maybank Kim Eng 2021-10-05: Slow Recovery; High Occupancy Cushions Negative Rental Reversions

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

SPH REIT - Slow Recovery; High Occupancy Cushions Negative Rental Reversions

  • SPH REIT (SGX:SK6U)’s 4Q21 DPU jumped ~193% y-o-y and ~15% q-o-q, with lower rental assistance, and a gradual recovery in tenant sales. While occupancies were resilient, portfolio rental reversion was weaker at -8.4% for FY21, versus +0.4% in 1H21.
  • Paragon’s recovery will need time, with negative reversions to persist, given softer tenant sales and absent tourism spend until 2H22.

Singapore portfolio – better at Clementi Mall

  • SPH REIT's portfolio occupancy improved q-o-q from 98.4% to 98.8% due to Paragon, which rose from 97.3% to 99.1%.
  • Paragon’s revenue fell 7.6% y-o-y in 4Q21, with rental reversion at -8.3% in FY21, versus +1.3% in 1H21. Despite a 17% y-o-y decline in footfall, its tenant sales remained stable, but were ~29% below pre-COVID levels.
  • Similarly, notwithstanding a 33% y-o-y decrease in footfall in Clementi Mall, its tenant sales rose 5% y-o-y, to -8.4% of FY19 level. While rising vaccination rates and easing travel restrictions should support recovery in FY22, rental reversions will likely remain soft.

Australia assets more resilient, set to improve

  • SPH REIT's Australian malls fared better as revenue lifted around 11 Oct, we see steady improvement in fundamentals into FY22, underpinned by resilient occupancies.

Conservative balance sheet, acquisition upside

  • Cap rates were stable in Singapore (at 3.75-6.0%), and they compressed by the S$480m asset could add ~8% to our FY22 estimates.

SPH REIT - Valuations

  • See SPH REIT's ESG metrics in report attached below.

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2021-10-05
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.95 UP 0.800