SPH REIT FY2020 Financial Results (Full Year)

SPH REIT Portfolio

SPH REIT FY2020 Financial Results have been released on 6th October 2020. A Distribution Per Unit (“DPU”) of 0.54 cents have been declared for Q4 FY20. The FY20 full year distribution was 2.72 cents per unit. This was a decline of 51.4% as compared to FY19.

It was mentioned that as COVID-19 continues to evolve and there is no certainty when normalcy will return, for prudence in financial management, S$14.5 million of FY20’s income available for distribution has been deferred. In addition, for financial flexibility, S$15.0 million of capital allowance utilised to provide for capital expenditure and other working capital requirement.

As a unit holder of SPH REIT, these are the questions I will ask myself.

  • What was the impact?
  • What is the manager proactively doing to minimise the impact of COVID-19?
  • Will SPH REIT recover from the impact of COVID-19?

Let us take a look in details the financial results.

SPH REIT FY2020 Financial Results (Full Year)

Gross Revenue and Net Property Income improved by 5.6% and 1.2% respectively.

The gross revenue included the contribution of S$37.5 million from Westfield Marion Shopping Centre which was acquired on 6 December 2019.

Even though there was an increase in gross revenue, the increase in property expenses and following COVID-19 measures resulted in less distribution to unit holders.

  • SPH REIT’s Australia assets, though not spared the effects of COVID-19, were relatively
    less impacted for the relevant period, and an allowance for rent relief of S$8.1 million was provided for FY2020 to support eligible tenants affected by COVID-19.
  • For prudence in financial management, the distribution of S$14.5 million (S$0.52 cents) was deferred a part of the FY2020 income, to FY2021.
  • An amount of S$15.0 million of capital allowance was utilised to provide for capital expenditure and other working capital requirements.
FY2020
(S$’000)
FY2019
(S$’000)
Change
Gross Revenue 241,463 228,635 5.6%
Net Property Income 181,943 179,779 1.2%
Net Asset Value 0.91 0.95 (4.2)%
Property expenses
(59,520) (48,856) 21.8%
Income available for distribution 92,226 145,034 (36.4)%
Distribution to Unitholders 72,851 144,790 (49.7)%
Distribution Per Unit (“DPU”) (cents) 2.72 5.60 (51.4)%

Occupancy

As of 31st August 2020, the average occupancy for its Singapore and Australian assets stood at 97.8% and 97.7% respectively. I have noticed a slight decline in occupancy for across all its assets.

  • Paragon (97.8%)
  • The Clementi Mall (99.6%)
  • The Rail Mall (92.2%)
  • Figtree Grove Shopping Centre (99.2%)
  • Westfield Marion Shopping Centre (97.4%)

SPH REIT Occupancy 31 Aug 2020

Lease Expiry

I like the way SPH REIT summarises its lease expiry of its assets. As you can see, 2% of the leases are expiring in terms of Net Lettable Area (“NLA”) in FY20.

SPH REIT Lease Expiry Profile 31 Aug 2020

Below is the details of the lease expiry for each malls.

SPH REIT Lease Expiry Profile (Singapore Assets) 31 Aug 2020

SPH REIT Lease Expiry Profile (Australia Assets) 31 Aug 2020

Debt

As of 31st August 2020, the gearing ratio stood at 30.5%. This was an increase of 3.0% as compared to the gearing ratio of 27.5% a year ago.

Weighted Average Term to Maturity (WALE) stood at 2.9 years.

SPH REIT Debt Maturity Profile 31 Aug 2020

Current Dividend Yield

Based on the FY20 full year DPU of 2.72 cents and current share price of S$0.85, this translate to a current dividend yield of 3.2%.

SPH REIT Share Price 9 Oct 20

Summary

What was the impact?

Occupancy is what worries me the most. As borders continue to be locked down and work from home measures being implemented, shopper traffic is bound to decline across all SPH REIT Singapore assets which are mainly shopping malls.

Paragon which is located at the Orchard Road shopping precinct, registered a year-on-year decline in footfall of 27.4% to 13.8 million and a decline in tenant sales of 28.3% to S$508 million.

The Clementi Mall, which is located in a residential suburb, was impacted by work from home arrangements and saw a drop in visitor traffic of 27.8% to 22.8 million.

What is the manager proactively doing to minimise the impact of COVID-19?

What the manager did was to proactively renew and/or sign new leases in advance to mitigate against vacancies. You can see this from the low percentage of leases expiring in FY20 and the high occupancy rate of 97.7% which I think is a feat given the current situation.

The management has practiced prudent financial management by deferring the distribution of S$14.5 million to FY2021.

Will SPH REIT recover from the impact of COVID-19?

Given all the above measures that were taken, I am confident that SPH REIT will be able to ride through this storm. International visitor arrivals should remain weak in FY2021 given that countries around the globe is still trying to fight this pandemic.

DPU will definitely take time to recover to its glorious days. Meanwhile, keep calm and collect dividends!

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.