SPH Reit 2QFY20 DPU Dipped 78.7% Due to COVID-19

SPH Reit 2QFY20 DPU Dipped 78.7% Due to COVID-19

No, it is not an April Fool’s Day joke. On 1st April 2020, SPH REIT announced its 2QFY20 financial results. Even though gross revenue has increased by 26.1% due to the new contribution from Westfield Marion Shopping Centre, the distribution income fell 77% and distribution per unit (“DPU”) fell 78.9%. The DPU payout for 2QFY20 is 0.30 cents in anticipation of COVID-19 challenges.

The following explains the decline in DPU.

Following the emergence of COVID-19, SPH REIT announced a Tenants’ Assistance scheme on 27 February 2020 to assist tenants impacted by the outbreak. Subsequent to 2Q 2020, S$4.6 million of rental rebates for February and March were set aside and the February tranche of the rebate will be credited to tenants commencing from April 2020. The S$4.6 million has not been recognised in the 6 months period ended 29 February 2020.

2QFY20 Financial Results

2QFY20
(S$’000)
2QFY19
(S$’000)
Change
Gross Revenue73,26853,12326.1%
Net Property Income56,53245,85523.3%
Distributable Income8,27236,440(77.3)%
Distribution Per Unit (“DPU”) (cents)0.301.41(78.7)%

Occupancy

Occupancy remains healthy at 98.9%.

  • Paragon (99.9%)
  • The Clementi Mall (100%)
  • The Rail Mall (92.2%)
  • Figtree Grove Shopping Centre (99.2%)
  • Westfield Marion Shopping Centre (98.4%)

Lease Expiry

The lease expiry for Paragon and The Clementi Mall is less worrying but I do see a higher lease expiry percentage for The Rail Mall, Figtree Grove and Westfield Marion Shopping Centre in FY20 which can impact the gross rental income.

The challenges for lease renewal can be the measures that are currently imposed due to COVID-19 such as the closure of restaurants, gyms, cafes and cinemas. Shopper traffic is also significantly reduced due to travel bans and restrictions to stay at home.

SPH Reit 2QFY20 DPU Dipped 78.7% Due to COVID-19

SPH Reit 2QFY20 DPU Dipped 78.7% Due to COVID-19

Dividend Yield

Besides this quarter, I am expecting future dividends over the next few quarters or even next financial year to be cut as well (depending on how long the COVID-19 situation will drag).1.38 cents was already paid out in 1QFY20. So if we based on the modest distribution of 0.30 cents in the next two quarters, I estimate the total distribution to be 2.28 cents.

Thus, based on the current share price of S$0.71 and a total DPU of 2.28 cents for FY20, the estimated dividend yield is 3.21%. Will the share price dipped further? I am not sure as no one has a crystal ball.

SPH Reit 2QFY20 DPU Dipped 78.7% Due to COVID-19

Is it a good time to enter into SPH REIT now? The REIT is at its historical high yield (7.89%) and my thought is that we should buy in small tranches should you want to buy into SPH Reit right now. If the share price fall lower, then deploy a second tranche.

The dividend yield will recover when the market recovers.

REITs Limited Time Offer!

REITs Limited Time Offer!

The Federal Reserve announced that it will cut interest rates to zero as part of its emergency measure to protect the economy from the impact caused by the COVID-19 virus. I thought that this will give the stock market a boost but it didn’t. The stock market plunged further and this makes REITs certainly a lot cheaper at ridiculous prices I have never seen before.

Below are the stocks that I currently held in my stock portfolio. With the dip in stock prices, the current dividend yield had increased which makes certain REITs very attractive. Do expect further downside and do not expect recovery that soon. For long term dividend investors, this should not be much of an issue.

I will probably wait for the stock market to hold steady at current levels before deploying more tranches of my cash.

Stock NameTotal Dividends Paid (Cents) (FY19)Closing Price (18th March 2020)Current Dividend Yield (%)
OUE Commercial REIT3.31S$0.3210.34%
Frasers Commercial Trust9.60S$1.128.57%
Frasers Logistics and Industrial Trust7.00S$0.828.54%
SPH REIT5.60S$0.747.57%
ComfortDelgro9.79S$1.556.32%
CapitaMall Trust11.97S$1.836.54%
Mapletree Commercial Trust9.14S$1.775.16%
Parkway Life REIT13.19S$2.814.69%
ST Engineering15S$3.304.55%