SPH REIT 3QFY20 DPU Remain Depressed

SPH REIT Portfolio

SPH REIT has announced a distribution per unit (“DPU”) of 0.50 cents for 3QFY20. This is a modest increase as compared to 0.30 cents paid in 2QFY20. If you are not aware, the DPU payout was reduced since 2QFY20 in anticipation of COVID-19 challenges.

Occupancy

Despite the current challenging retail environment, SPH REIT’s portfolio occupancy rate stood healthy at 98.8%. The Weight Average Lease Expiry (“WALE”) stood at 4.1 years.

Lease Expiry

In the last quarter, Clementi Mall and The Rail Mall have 17% and 26% lease expiry by Net Lettable Area. I am glad that this has been reduced to 0% which means investors do not have to worry about lease expiry for its Singapore portfolio in FY20.

SPH REIT Lease Expiry 3QFY20 Singapore

There is still much to be done for SPH REIT’s Australian portfolio. 28% of leases are expiring in FY20 which can impact the gross rental income.

SPH REIT 3QFY20 DPU Remain Depressed

Shopper Traffic

As you can see below, this is how bad the damage that the COVID-19 pandemic has done to the shopping malls. Visitor traffic fell from 4.6 million in 3QFY19 to 1.9 million in 3QFY20 for Paragon Shopping Centre. We can imagine Orchard road like a “ghost town”.

Suburban malls such as The Clementi Mall was not spared either. Visitor traffic fell from 8.0 million in 3QFY19 to 3.8 million in 3QFY20.

SPH REIT 3QFY20 Shopper Traffic

Dividend Yield

1.38 cents and 0.30 cents were already paid out in 1QFY20 and 2QFY20 respectively. Based on 0.50 cents paid in the current quarter and next quarter, the estimated total dividend paid out by SPH REIT in FY20 will be 2.68 cents.

Based on an estimated payout of 2.68 cents and current share price of S$0.88, this translates to an estimated dividend yield of 3.1%.

If you are confident SPH REIT will regain its high DPU payout of 5.60 cents in FY21 (similar to FY19), this translates to an estimated dividend yield of 6.36% based on the current price.

SPH REIT Share Price 3 Jul 2020

Summary

As Singapore and Australia starts to recover from the COVID-19 pandemic, shoppers are starting to come back to the malls. As other retail REITs have yet to release their latest financial results or updates, I am unable to determine whether the malls under SPH REIT are recovering faster than the others such as CapitaMall Trust.

One thing for sure is that the DPU for retail REITs will remain depressed below 5% in FY20.

Mapletree Industrial Trust To Acquire Data Centres

Mapletree Industrial Trust Data Centres

Mapletree Industrial Trust has a portfolio that comprises of 87 industrial properties in Singapore and 27 data centres in North America (through the joint ventures with Mapletree Investments Pte Ltd).

In my previous post, I mentioned that some analysts considered Mapletree Industrial Trust as an alternative data center play even though data centre only makes up 31.6% of the portfolio value.

Today, Mapletree Industrial Trust has announced their proposed acquisition of the remaining 60% interest in the 14 data centres located in the United States of America.

With the acquisition, this will increase their data centre exposure from 31.6% to 39.0% in terms of Assets Under Management (“AUM”).

Mapletree Industrial Trust Portfolio Breakdown Post Acquisition Data Centre

What are the benefits of the proposed acquisition?

I believe investors will be keen to understand the rationale or benefits of the proposed acquisition. Below are the rationale and benefits listed in their presentation slides. I have highlighted the points that I felt important in green.

#1 Increases MIT’s Exposure to the Resilient Data Centres Segment

I agree with Mapletree Industrial Trust that the COVID-19 crisis has provided a favourable tailwinds for the data centres segment. Cloud providers have reported strong demand for data centre space during the pandemic.

The global revenue for cloud computing is expected to grow at a compounded annual growth rate (“CAGR”) of 14% from 2018 to 2024F. An accelerated growth may be expected as a result of the pandemic.

Data centres were identified as essential infrastructure in North America during the pandemic and had remained open during the lockdown period.

#2 Enhances Income Stability of the Enlarged Portfolio

81.6% of the Mapletree Redwood Data Centre Trust’s portfolio comprises of powered shell data centres. If you do not know what are powered shell data centres, they are facilities with exterior construction completed, available power and connectivity, but with the interior left as raw space to be finished by the customer.

All the tenants are on triple net lease structures whereby all maintenance, tax and insurance charges are borne by the tenants. 97.8% of the Mapletree Redwood Data Centre Trust’s portfolio has annual rental escalations of 2.0% and above, providing stable and growing cash flows.

The acquisition will augment Mapletree Industrial Trust’s tenant base with higher exposure to resilient data centre tenants. As you can see below under Post-Acquisition, it also diversifies Mapletree Industrial Trust’s tenant base and reduces exposure to any single tenant from 8.0% to 7.2%.

Mapletree Industrial Trust Data Centres Tenant Base

#3 DPU and NAV Accretive to Unitholders

Post acquisition, the distribution per unit (“DPU”) is expected to increase 3.4% from 12.24 cents to 12.66 cents.

Net Asset Value (“NAV”) is expected to increase from S$1.62 to S$1.68.

Mapletree Industrial Trust DPU and NAV Pro forma

#4 Strong Support from the Sponsor

As at 31 March 2020, the Sponsor owns and manages S$60.5 billion worth of properties across Asia Pacific, Europe, the United Kingdom and the U.S., of which S$12.5 billion of properties are located in North America.

Mapletree Industrial Trust will continue to leverage on the Sponsor’s local market experience to manage the Mapletree Redwood Data Centre Trust’s portfolio.

Right of first refusal was granted to Mapletree Industrial Trust over future sale of 50.0% interest in Mapletree Rosewood Data Centre Trust (“MRODCT”).

Acquisition to be fully funded by equity

The acquisition will be fully funded by equity with excess proceeds to be used for debt repayment, future acquisitions and/or general corporate and/or working capital purposes.

This will be done via a private placement to raise gross proceeds of no less than approximately S$350.0 million.

Funding Requirements
Purchase ConsiderationUS$210.9 million (approximately S$299.5 million)
Transaction CostUS$2.2 million (approximately S$3.1 million)
Acquisition FeeUS$4.9 million (approximately S$7.0 million)
Total Acquisition OutlayUS$218.0 million (approximately S$309.6 million)

Pro Forma Dividend Yield

Based on the current share price of S$2.84 and pro forma distribution per unit of 12.66 cents, this translates to an estimated dividend yield of 4.46%.

I wish I had bought into Mapletree Industrial Trust during the stock market crash.

Mapletree Industrial Trust Share Price 22 Jun 2020

IREIT Global Secured 5 Year Lease With AREAS

AREAS Logo

IREIT Global has secured a major 5 year lease for approximately 3,450 square metre of office space with ÁREAS, S.A.U. (“AREAS”) at the Il-Luminia property located in Barcelona, Spain. Il-Luminia will be home to the new headquarters for the tenant, ÁREAS, S.A.U. in Barcelona.

If you are not familiar with AREAS, the company is one of the global leaders in food and beverage services. Founded in 1968, AREAS offers a wide range of services designed for national and international travelers through 91 airports, 84 railway stations and 227 motorway service plazas.

AREAS serves around 340 million customers each year through its 2,100 restaurants and stores across 12 countries in Europe and United States. The company is the market leader in Spain and France and is the third largest provider of travel food and retail services worldwide.

As of 31st March 2020, IREIT Global’s overall portfolio occupancy stood at 94.7%. This was because the overall occupancy was bogged down by its Spanish portfolio.

With the addition of AREAS, the occupancy rate for IL-Luminia will improve from 69.2% to 86.4% on a pro forma basis.

German Portfolio

BERLIN
CAMPUS
BONN
CAMPUS
DARMSTADT
CAMPUS
MÜNSTER
CAMPUS
CONCOR
PARK
CityBerlinBonnDarmstadtMünsterMunich
Occupancy100%100%100%100%97.5%

Spanish Portfolio

DELTA NOVA IVDELTA NOVA VIIL-LUMINASANT CUGAT GREEN
CityMandridMandridBarcelonaBarcelona
Occupancy93.7%94.5%86.4%77.1%

Summary

The 5 year lease with AREAS is definitely something positive for investors of IREIT Global. The new lease with AREAS represents one of the largest known rental transactions in Barcelona, Spain year-to-date.

The risk of investing into IREIT Global will be the weak EUR/SGD exchange rates which impacts the Distribution Per Unit in SGD.