SPH REIT - OCBC Investment 2022-04-04: Gradual Recovery

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

SPH REIT - Gradual Recovery

  • SPH REIT's 2Q/1H22 Distribution per unit (DPU) rose 16.1%/9.8% y-o-y.
  • Suburban mall remained more resilient.
  • More than 70% of debt hedged.

In-line set of results

  • SPH REIT (SGX:SK6U)’s 1H22 ending Feb 2022 (FY22) gross revenue grew 1.2% y-o-y to S$141.6m while NPI increased marginally by 0.4% y-o-y to S$105.3m. This growth was largely driven by a gradual recovery in operating environment but partially offset by an increase in property operating expenses due to higher electricity rates (~+30% y-o-y).
  • Management mentioned that the utility costs for the REIT’s Australian assets are relatively more protected against rising costs as they are on fixed rates.
  • For 2Q22 and 1H22, SPH REIT's DPU came in at S$0.0144 (+16.1% y-o-y) and S$0.0268 (+9.8% y-o-y) respectively, in line with our expectations.

Rental reversion was -8.4% for Singapore assets

  • As at 28 Feb 2022, SPH REIT’s portfolio occupancy rate remained healthy at 98.4% (-0.4 ppt q-o-q). Rental reversions for its Singapore assets remained negative at 6.4% due to weak retail leasing sentiment, albeit improvement from FY21 (-8.2%).
  • Paragon and The Clementi Mall saw negative rental reversions of 7.3% and 4.0% respectively while The Rail Mall recorded a positive rental reversion of 8.9%, benefiting from its positioning on F&B tenants.

Tenants’ sales recovery was disrupted by a spike inOmicron cases

  • The recovery in tenants’ sales were disrupted by the late Dec 2021 and Jan 2022 resurgence of COVID-19 cases in Singapore and Australia, before a recovery in Feb 2022. Overall, tenants’ sales for the three malls in Singapore improved 2% y-o-y in 1H22 due to relaxation of dine-in restrictions.
  • For Australia, performances of Westfield Marion and Figtree Grove were weaker, impacted by a surge in COVID-19 cases in Australia. As a result, Westfield Marion’s tenants’ sales improved 1% y-o-y while Figtree Grove saw tenants’ sales declined 10% y-o-y. As economies reopen, we could see continued recovery in tenants’ sales and footfall, barring the resurgence of COVID-19 cases.
  • After adjustments and increasing our risk-free rate from 1.9% to 2.5%, but lowering beta to reflect the reopening of economies, we maintain our fair value estimate for SPH REIT at S$0.95.
  • See

Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2022-04-04
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.95 UP 0.880