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Highlights from SPH REIT’s Latest Third Quarter Results

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SPH REIT (SGX: SK6U) said on Friday that its distribution per unit for its third quarter (for the financial year ending 31 August 2014) was at 1.35 Singapore cents, 3.1% higher as compared to the forecast given in its initial public offering (IPO).

The sponsor, manager, and majority-owner of SPH REIT happens to be Singapore Press Holdings (SGX: T39), Asia’s leading media organisation. The REIT, which owns two malls – Clementi Mall and Paragon Mall – debuted in our local bourse in July last year at $0.90 apiece.

For the financial year-to-date period from 24 July 2013 to 31 May 2014, gross revenue for the REIT was at S$171.8 million, in line with its IPO forecast. The REIT’s net property income of S$127.9 million, on the other hand,  was 2.4% higher than estimated due to proactive management of expenses.

Meanwhile, SPH REIT’s total distribution and distribution per unit were at S$115.4 million and 4.60 cents respectively. Those two key figures were also 3.4% and 3.1% higher than their respective IPO forecasts.

Based on the REIT’s listing price, its annualised distribution yield stands at 5.95%, higher than the forecasted yield of 5.77%.

Both the malls in the REIT’s portfolio were 100%-leased. The REIT’s unit-holders would be pleased to see that both malls were able to increase their rents: Clementi Mall had seen an average increase of 5% in rental rates in the renewal of 121 expiring leases; Paragon Mall meanwhile, achieved a positive rental reversion – where rents are adjusted based on prevailing market conditions – of 11.5%. On a portfolio-wide basis, SPH REIT experienced a growth rate of 8.4% in rental rates.

As of 31 May 2014, SPH REIT carried a strong balance sheet because of its low gearing ratio (total debt divided by total assets) of 26.9%. The REIT’s average cost of debt (i.e. average interest rates) is at 2.3% and its loans would mature after 4.3 years on average. SPH REIT has no refinancing needs until 2016 and that gives the REIT lots of breathing room to manoeuvre its finances in terms of sourcing for capital to make future acquisitions (if any) and exploring different options to refinance its borrowings if needed.

SPH REIT ended 31 May 2014 with a net asset value of S$0.90. At its current price of S$1.03 per unit, the REIT is trading at 1.14 times its book value.

Ms Susan Leng, Chief Executive Officer of the manager of SPH REIT, was upbeat about the REIT’s robust performance. The following are some of her comments:

“We are pleased that SPH REIT has continued to outperform forecast in 3Q FY14, rewarding unitholders with higher returns. The good performance is attributable to the strong positioning of both properties in our portfolio, proactive asset management and firm partnership with our tenants. We are confident that our philosophy of continual enhancement to our properties will sustain future performance.”

Going forward, Paragon Mall may see some refurbishments as management has identified three asset enhancement initiatives for the mall. Together, these initiatives can help create an estimated net lettable space of around 10,000 sq ft.

As for future growth areas, the upcoming Seletar Mall, which is co-developed by SPH and United Engineers (SGX: U04) and slated for completion in December this year, could be pumped into SPH REIT in the future.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.