SPH REIT

SPH REIT’s results were in line with estimates. 4QFY15 distributable income slid 4% y/y to $33.6m, while DPU was flat at 1.39¢ after including income retained earlier. This brought full year distributable income and DPU to $138.5m (+1.6%) and 5.47¢ (+0.7%) respectively.

For the quarter, revenue and NPI dipped to $50.8m (-0.6%) as higher rental income from positive reversions were offset by the fitting-out period at Paragon arising from a tenancy revitalisation programme. NPI inched up to $38.2m (+0.4%) due to lower operating expenses as a result of savings in utilities and lower maintenance cost.

During the year, SPH REIT enjoyed healthy rental reversion of 8.6% (Paragon: +9.1%, Clementi: -5.6%). Visitor traffic improved for both Paragon and The Clementi Mall to 18.8m (+2%) and 30.8m (+4.7%). But Paragon’s tenant sales fell by 3.2% to $657m, largely impacted by the fitting out period, while that for Clementi Mall rose 3.6% to $242m.

Committed occupancy was maintained at 100%, with weighted average lease expiry of 2.3 years. Meanwhile, aggregate leverage remained a very comfortable 25.7% (-0.3ppt q/q) with average debt tenor of 2.9 years at 2.55% cost.

Overall, the REIT put up a fairly resilient performance amid the challenging conditions besetting Singapore’s retail sector. As a reference, core retail sales in Singapore slipped 0.8% in 2Q15, while visitor arrivals fell 1.7% for the first seven months of 2015. Additionally, the official GDP growth forecast had been revised down to 2-2.5%, from initial estimates of 2-4%.

Nevertheless, management remains optimistic of Paragon’s strong positioning, alluding to its steady performance in past economic cycles. The REIT currently has the right-of-first-refusal for Seletar Mall, which has 100% committed occupancy.

SPH REIT is currently trading at 1x P/B and offers a 5.7% annualised 4QFY15 yield.