SPH REIT - Maybank Research 2022-04-04: Recovering, Low Deal Visibility

SPH REIT (SGX:SK6U)

SPH REIT - Recovering, Low Deal Visibility

SPH REIT (SGX:SK6U)’s 2Q22 DPU rose ~4% y-o-y/~16% q-o-q with 1H22 DPU reaching 49% of our FY22E. The results - with revenue up 1.2% y-o-y/3.2% h-o-h and NPI rising 0.4% y-o-y/7.7% h-o-h - were in line to our estimates, and we maintain our forecasts and DDM-based target price of S$0.95 (COE: 7.2%, LTG: 1.5%) for SPH REIT. Stay at HOLD.

While recovery is underway, acquisition visibility remains low, and we expect SPH REIT to trade sideways in the near term, as it is bound by a chain offer, resulting from its sponsor’s ongoing privatisation exercise. Clementi Mall’s resilience however reinforces our preference for suburban retail. As a result, we prefer Frasers Centrepoint Trust (SGX:J69U) for its concentrated suburban mall portfolio.

Occupancy for SPH REIT's Singapore assets dipped slightly to 99.1% in 2Q22 (from 99.8% in 1Q22) due to lower occupancy at Paragon (98.8% vs 99.7%), even as occupancies were maintained at Clementi Mall (at 99.9%) and the Rail Mall (100%).
While tenant sales rose 1% y-o-y in 1H22 at Paragon (vs. -7% y-o-y in 1Q22), they were up 6% y-o-y at Clementi Mall (vs. +5% y-o-y in 1Q22), which climbed above pre-COVID-19 levels in 2Q22.
The loosening measures from 29 Mar should support recovery, but we expect rental reversions to remain soft, especially at Paragon, as recovery in tourist is slow.

Occupancy was lower at Westfield Marion at 98.0% in 2Q22 (from 99.1% in 1Q22) while tenant sales rose 1% y-o-y in 1H22 (vs +6% y-o-y in 1Q22), as its recovery was hampered by a spike in COVID-19 cases in Jan 2022.
While Figtree Grove’s occupancy rose to 99.0% (from 98.2%), its tenant sales declined 10% y-o-y in 1H22, due to a resurgence of cases following an easing of a 3.5-month lockdown in New South Wales in Oct 2021.
Retail sales in Australia rose 1.8% q-o-q/9.1% y-o-y in Feb 2022, underpinned by improving consumer sentiment, and we see better fundamentals in 2H22, backed by the malls’ resilient occupancy.

SPH REIT’s borrowing cost fell to 1.66% in 2Q22 from 1.68% in 1Q22). Its balance sheet is conservative with gearing at 30.1%, and S$1.1b of debt headroom (at 45% limit). We expect its sponsor’s Seletar Mall to be a priority acquisition target, and a fully debt-funded acquisition for the S$480m asset would lift our FY22 DPU forecast by ~8%. However, with restructuring of its sponsor likely to be a priority, inorganic growth is likely to take a back-seat.
See

Chua Su Tye Maybank Research | https://www.maybank-ke.com.sg/ 2022-04-04

SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.950 SAME 0.950