Price (26 Aug 13, S$) 0.96
Target price (S$) 1.05¹
A slice of (shopping) heaven
■ A play on Orchard Road’s buzz; proxy to resilient suburban retail. We initiate coverage on SPH REIT with a NEUTRAL rating and S$1.05 target price. SPH REIT comprises two properties: Paragon, one of the top four malls on Orchard Road (by NLA), complemented by Paragon Medical, and Clementi Mall, a suburban mall located at the busy Clementi bus and MRT interchange. With an asset value of S$3.1 bn, SPH REIT is the third largest Singapore dominant retail S-REIT by asset size, after CMT and MCT.
■ Supportive sector fundamentals. Retail demand continues to be supported by healthy wage growth, underpinned by low unemployment. Meanwhile, supply risk at Paragon (key asset, 82% of FY14E NPI) is mitigated given high pre-leasing of 80-100% at the two upcoming malls on Orchard Road. We believe there could be some competition risk at Clementi Mall from upcoming malls at Jurong East, though some of the risk is offset by the strong catchment from residents and nearby education institutions and the strong footfall from transport links.
■ Growth drivers: rent reversions and acquisitions. SPH REIT's assets are strategically located. Coupled with its relatively reasonable occupancy cost of 15.7% at Paragon and 13.5% at Clementi Mall (CMT 16.1%, FCT ~16%), we believe its rental outlook should be supported by healthy demand for its assets. Further growth will likely be driven by acquisitions—SPH REIT has a ROFR for SPH’s Asia Pacific retail-focused assets. The Seletar Mall, completing in 2014, is one of SPH REIT's future pipeline.
■ Initiate with a NEUTRAL. SPH REIT trades at 5.5% FY14 yield (5.3% exincome support). Given its yields, we believe that the risk-reward is less attractive as share prices of some its peers have fallen much more with the recent sell-off. Key risks include macroeconomic, competition, interest rate and acquisition risks (dilution risk depending on acquisition size).
Source/Extract/Excerpts/来源/转贴/摘录: Credit Suisse
Publish date: 27/08/13