SPH REIT's Strong Performance With Double-Digit Rental Reversion


Screenshot from SPH REIT website


Key Highlights:

  • Distribution per unit (DPU) in the first quarter was up 3% year-on-year

  • SPH REIT has one of the strongest portfolios, with very conservative leverage at 26.8%


1. Dividend Payout


Gross revenue and net property income grew 11.8% and 12.4% to $60.1m and $47m respectively. The good performance was driven by the higher rentals from Paragon and contribution from Figtree Grove Shopping Centre in Australia.


All the Singapore assets are located at prime and strategic locations, which continue to enjoy strong positive rental reversion of 10.9%.

  • Paragon in Orchard Road: 10.7%

  • Clementi Mall in the west: 10.6%

  • Rail Mall along Upper Bukit Timah Road: 12.8%

The five-year rental support for Clementi Mall was ended, but net property income was well-supported by the two new malls, Rail Mall and Figtree Grove. On a side note, 13% of the portfolio leases are expiring this year. Looking at the rental reversion trend and the strategic location of its properties, this will potentially provide some upside on the property income. The overall cost of debt is at 2.91%.


Its portfolio occupancy was stable at 99.3%.


2. Growth


SPH REIT recently completed the acquisition of a 50% stake in Westfield Marion, the largest and the only regional shopping centre in South Australia. The acquisition was funded through equity fundraising. Post-acquisition, the REIT still has debt headroom of more than $1 billion for future acquisitions.


Besides, Seletar Mall remains as the potential acquisition deal in Singapore, the asset is expected to be yield-accreditive of 3 to 5%.



Summary


SPH REIT is currently trading at a 5.1% dividend yield. The price-to-book is at an all-time high of 1.13, suggesting that the REIT could be overvalued at the current price. Given the backdrop of the economy and current valuations, we would prefer to remain SPH REIT in our watchlist.


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