SPH REIT -Uplift from Paragon (DBSV)

SPH REIT
HOLD S$0.99 STI : 3,145.41
Price Target : 12-Month S$ 0.97
Uplift from Paragon

• Resilient results supported by strong performance of Paragon Mall
• Minimal risks for Clementi Mall as most of expiring leases have been renewed
• Maintain HOLD, TP S$0.97

Highlights
Resilient results. SPH REIT reported results for the period July 24, 2013 to Nov 30, 2013 which were in line with expectations.
Topline and net property income came in 0.7% lower and 0.5% higher compared to IPO forecast at S$70.4m and S$51.4m, respectively. Higher rentals were achieved at Paragon, while performance of Clementi Mall remained flattish. Paragon and Clementi Mall continue to see strong shopper traffic, reporting uplifts of 0.6% and 9.3% y-o-y. Distributable income of S$46.5m was 1.9% higher than forecast, aided by interest savings (2.33% vs 2.35% forecast) and lower trust expenses, translating to a DPU of 1.86 Scts.

Prudent capital management. The balance sheet remained robust, with no refinancing needed till 2016 and the Manager has also fixed close to 55% of its interest costs. Gearing was stable at 26.7%; NAV inched slightly higher at S$0.90.

Our View
Paragon Mall continues to power on. Paragon continues to do well, with the trust achieving a positive rental reversion of 12.4% for close to c9.3% of the property’s NLA that expired over the period. Going forward, we expect Paragon to continue to perform strongly given its prime location in Orchard Road, supported by expectations of continued robust outlook for tourist arrivals in 2014. Moreover, with only c7.5%/8.9% of the property’s NLA/gross rental income expiring over FY14, we see minimal risk to earnings.

Renewal risks have been minimized for Clementi Mall with majority of tenants committing to renew. Clementi Mall saw a marginal 1.9% decline in rents over the period due to a change in tenant mix but impact was minimal given the small footprint (2,659 sqft, 1.4% of NLA). Looking ahead, the Manager has secured a high level of pre-commitments for leases expiring in 2014 ( > 90% of tenants have renewed), and this minimizes downside risk given the concentration of expiries (est at c80% of NLA previously) as the mall approaches its first renewal cycle.

Recommendation
Maintain HOLD, TP S$0.97. We like SPH REIT for its stable earnings and resilient portfolio. At the current price, the stock offers investors a dividend yield of 5.4%-5.5%, which we believe reflects investors’ confidence in the REIT’s stability. However the stock is trading at a premium to other retail REITs which currently offer yields of 5.8%- 6.5%. We thus maintain our HOLD call, with a TP of S$0.97.

Source/Extract/Excerpts/来源/转贴/摘录: DBSV-Research,
Publish date: 10/01/14