Share Price: SGD0.76
Target Price: SGD0.84
Yearning for growth
FY13 DPU up 13.9% to 5 SGD cts. Singapore portfolio remained the key growth driver. Full-year results met expectations.
China and Japan portfolios continued to languish, with FY13 NPI down 16.1% and 50.7% YoY respectively.
Look forward to divestment of China and Japan assets and AEI in Australia in FY14.
Results in line with expectations
SGREIT posted a 7.9% YoY rise in FY13 revenue to SGD200.6m, mainly bolstered by higher income from Singapore properties – increases in the base rent for master tenant Toshin at Ngee Ann City and receipt of the resulting rental arrears from Jun 2011-Dec 2012 (Court of Appeal ruled in favour of SGREIT in Aug 2013), as well as stronger performance of Wisma Atria following the asset redevelopment. The increase was also aided by contribution from Plaza Arcade, acquired in 1Q13. Full-year DPU grew 13.9% to 5 SGD cts, forming 101% of our and 102% of consensus forecasts. Balance sheet remains strong with a low gearing of 29% (down from 30.6% in 3Q13 due to the addition of SGD137.5m of revaluation gains). 94% of borrowings are fixed/hedged via interest rate swaps and caps. No refinancing requirement until Jun 2015. Portfolio occupancy rate dipped to 99.4% from 99.7% last quarter
Expect divestment of non-core China, Japan assets
Despite 100% occupancy, Renhe Spring Zongbei still saw a 13.1% YoY drop in FY13 NPI, hit by lower revenue amid stiff competition, slowdown in the high-end and luxury retail segments, and higher promotional costs. The Japan portfolio contributed 1.8% of FY13 NPI, plunging 50.7% YoY due to a weakened JPY (down 14.8% against the SGD in 2013), provision for rental arrears and sale of Roppongi Primo in 1Q13. SGREIT’s FY14 growth drivers include the potential asset redevelopment of David Jones Building and Plaza Arcade in the heart of the Perth CBD. In addition, an upward-only lease review for David Jones Building is due in Aug 2014, which SGREIT has guided for a possible 6% increase. In our view, inorganic acquisitions stand a higher chance of “moving the needle”, and management has said it is eyeing Singapore, Malaysia and Australia. We also look forward to the divestment of its China and Japan assets in FY14. Maintain HOLD and DDM-derived TP of SGD0.84 (discount rate of 7.3%).
Publish date: 27/01/14