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My Personal Analysis of SPH REIT

SPH REIT Logo

Portfolio

SPH REIT must be one of the fewer REITs with not much properties in its portfolio. In fact, there is only two which is Paragon and The Clementi Mall. There are news SPH REIT will add Seletar Mall to its portfolio.

Occupancy

Both Paragon and The Clementi Mall are at 100% occupancy. I have noticed there are no vacant shop spaces in Paragon and The Clementi Mall. If you have been to The Clementi Mall, you noticed that it is always bustling with people at any time. Perhaps it is also because of its proximity to the bus interchange and nearby schools.

I used to take part time night classes at Singapore Institute of Management (SIM) and I will grab a dinner prior to crossing the road to take the bus to school. I will say The Clementi Mall is situated at an excellent strategic location.

Financial Summary

Let us look at its recent 1st quarter FY2017 results. Gross revenue, Net Property Income and Distribution Per Unit all increases as compared with 1st quarter FY2016. In my opinion, the results are pretty decent.

1Q2017
(S$’000)
1Q2016
(S$’000)
Change
Gross Revenue 52,579 52,095 0.9%
Net Property Income 41,422 40,104 3.3%
Distributable Income 36,374 35,308 3.0%
Distribution Per Unit (“DPU”) (cents) 1.34 1.33 0.8%

We look at the annualized financial results. I will say the results are stable but not excellent. Distribution Per Unit increased by only 0.5%. One thing note worthy is that given current headwinds in the retail industry, SPH REIT still manages a set of stable financial results. Applause to the management for that.

2016
(S$’000)
2015
(S$’000)
Change
Gross Revenue 209,594 205,113 2.2%
Net Property Income 160,911 155,620 3.4%
Distributable Income 139,711 138,044 1.2%
Distribution Per Unit (“DPU”) (cents) 5.50 5.47 0.5%

Debt

As of 30 November 2016, gearing stood at 25.7%. The gearing is extremely low and there is a lot of room for more borrowing for future acquisitions. Recently, it was announced that SPH REIT is looking at adding Seletar Mall to its portfolio.

Management

Dr Leong Horn Kee is the chairman while Ms Susan Leng Mee Yin is the CEO. It is worthy to note Dr Leong was a deputy director at the Ministry of Finance and Ministry of Trade and Industry from 1977 to 1983 and also a Member of Parliament for 22 years from 1984 to 2006.

Ms Susan Leng has 19 years of aggregate experience in shopping centre management and property development, and 8 years of accounting and finance experience.

Current Valuation

Based on FY16 annualized distribution of 5.5 cents and current price of $0.98, the dividend yield is 5.61%.

The dividend yield is not very fantastic and also slightly lower than CapitaMall Trust dividend yield of 5.86% (My Personal Analysis of Capitaland Mall Trust).

Another retail REIT, Starhill Global REIT offers a dividend yield of 7% at current price of S$0.74 and annualized dividend of 5.18 cents (My Personal Analysis of Starhill Global REIT).

At the current price of S$0.98, SPH REIT is also trading above its Net Asset Value (“NAV”) of $0.94.

Strength and Catalyst

1. Good Sponsor

We can all guess who is the sponsor behind SPH REIT just by its name. “SPH” stands for Singapore Press Holdings.

2. Stable Performance

SPH REIT financials have been relatively stable.

3. Possible Acquisition of Seletar Mall

DBS has released an analyst report that if SPH REIT acquires Seletar Mall, this will give its Distribution Per Unit a boost of 3 to 5%. So if we are conservative, based on the historical annualized distribution of 5.50 cents in 2016, a 3% increase will amount to 5.665 cents with the acquisition of Seletar Mall. This will also translate to an estimated dividend yield of 5.78% based on the current stock price of S$0.98.

Weakness

1. Mediocre Dividend Yield

Dividend yield is 5.61% and slightly lower than what CapitaMall Trust and Starhill Global REIT can offer.

2. Conservative Management

Although having low debt can be a strength as well, SPH REIT has a low gearing ratio of 25.7% which can also reflect its weakness. As REITs by nature are funded by debt, the lack of adventures by the management to take on more debt for acquisition in order to grow the REIT can result in flat performance or under performance in the long run.

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