Thursday, January 16, 2014

SPH REIT -Key takeaways from post-inaugural results investor luncheon (CS)

Price (13 Jan 14 , S$) 1.00
TP (prev. TP S$) 1.05 (1.05)
Maintain NEUTRAL
Key takeaways from post-inaugural results investor luncheon

● DPU for the period of 24 Jul-13 (listing) to 30 Nov-13 of 1.86S¢ was 2% above prospectus forecast due to utilities savings, lower marketing, property taxes and savings with the waiver to prepare FY13 financials. DPU for the Nov-13 quarter was 1.30S¢, or 25% of our FY14E's 5.22S¢.

● Twenty seven leases were signed during the period, with 11.7% positive rent reversion, led by Paragon, +12.4%. Most of the leases expiring in 2014 (mall opened in May-2011, i.e., first lease term) have been renewed/re-let and more than >90% of the tenants by NLA have committed for a second lease term (likely to see positive rent reversions). Both malls are 100% occupied.

● Gearing remains healthy at 26.7%, implying S$400 mn debt headroom assuming 35% gearing. Next likely acquisition is The Seletar Mall, completing in Dec-14 (so far 28% pre-leased).

● Despite its quality portfolio, at 5.3% FY14 yield (5.1% ex-income support), we believe market may already be pricing in its portfolio and the fairly slow-and-steady growth outlook. Maintain NEUTRAL with S$1.05 DDM-derived target price.

Key highlights
(1) Likely on track to achieve forecasted DPU: Baring any unforeseen circumstances, management is confident that its assets should continue to perform well amid a competitive and challenging sales outlook (particularly for luxury sector, which has seen some weakness in light of weaker overall tourism receipts in 2013, due to global uncertainties and weaker regional currencies). Occupancy continues to be 100% for both assets—we understand there is a waitlist for tenants wanting to enter Paragon, which we believe should give SPHR the upper hand when negotiating for reversions, given the scarcity of high-end quality space along Orchard Road. Management said retention ratio was > 90%.

(2) Better rents ahead for Clementi Mall: While Clementi Mall is still under its income support period, we understand that >90% of the tenants with leases expiring in 2014 by NLA have committed for a second lease term, likely at higher rents (mall opened in May 2011, majority of renewals will be visible in the upcoming May-quarter results). Management remains optimistic on rents catching up to the income support levels in the medium term. Recall that income support for the asset is for 5Y (aggregate amount < S$20 mn) if NPI falls below S$31 mn p.a. which implies a 5.4% 'stabilised yield'.

(3) Thoughts on competition in the West and impact on the Clementi Mall? Jem opened in July while Westgate opened in Dec 2013. So far, evident from the healthy take-up for renewals and shopper traffic, The Clementi Mall still seems to be holding up well. However, the true test of the performance of the new malls will be 6M from now, as a typical new mall may be in its 'honeymoon phase' in its initial opening months.

(4) Labour remains the key consideration for tenants: According to management, labour is one of the key determinants for retailers when considering expansion plans—if the retailer is unable to source labour, then expansion plans could be deterred or foregone.

(5) Office/medical suites outlook remains stable: While there is competition from new offices in the CBD, supply remains fairly stable in Orchard Road, supporting office rents. There may be upcoming competition from the Novena medical precinct, but so far, Paragon Tower remains resilient.

(6) Acquisition outlook: Despite having an Asia Pacific investment mandate, management intends to focus on Singapore in the near term although it acknowledges that suitable opportunities are increasingly hard to come by. However, SPHR does have the ROFR to acquire SPH's retail assets, including The Seletar Mall, which is expected to complete in Dec-14 (so far 28% pre-leased – Fair Price Finest, Shaw Theatres and NTUC Foodfare food court).

Maintain NEUTRAL
Despite its quality portfolio, at 5.2% FY14 yield (5.1% ex-income support), we believe market may already be pricing in the resilience of its portfolio and the fairly slow-and-steady growth outlook. Maintain NEUTRAL with S$1.05 DDM-derived target price, which offers 5% upside or 10% total return from current levels.

Source/Extract/Excerpts/来源/转贴/摘录: Credit Suisse
Publish date: 14/01/14

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