With 5.1% Dividend Yield, Is SPH REIT A Quality REIT?


Screenshot from SPH REIT website


Key Highlights:

  • Distribution per unit (DPU) in the fourth quarter was up 2.1% year-on-year

  • SPH REIT has one of the strongest portfolios, with very conservative leverage at 27.5%


1. Portfolio


SPH REIT (SGX: SK6U) owns four assets:

  1. Paragon in Orchard Road

  2. Clementi Mall in the west

  3. Rail Mall along Upper Bukit Timah Road (acquired in Jun 2018)

  4. Figtree Grove in New South Wales Australia (acquired in Dec 2018).

Moving forward, SPH REIT has a right of first refusal to the Seletar Mall, which is owned by the sponsor, SPH. The mall is valued at SGD488m. The management is also keen to expand its portfolio in Australia, which is in general yield accretive.


2. Dividend Payout


Both the Paragon and Clementi Mall is located at prime and strategic locations, which is expected to enjoy single-digit rental reversion in the next three years. 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. Beside, Paragon also gains from the recovery from Orchard Road rents.


Its portfolio occupancy was stable at 99.1%. All properties were at nearly full occupancies except for Rail Mall at 84.3%.


3. Valuations


SPH REIT is currently trading at a 5.1% dividend yield. The gearing ratio is relatively low at 27%, which gives SPH REIT ample headroom for financing in the future, close to SGD1.2b at 45% gearing. The price-to-book is at all-time high, suggesting that the REIT could be overvalued at current price.

Screenshot from REITs dashboard


A size-able overseas acquisition would be a positive catalyst, given limited DPU accretive opportunities in Singapore.



Summary


Given the backdrop of the economy and current valuations, we would prefer to keep SPH REIT in our watchlist and monitor for potential asset acquisition in the near future.



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