Steady as She Goes for SPH REIT’s Latest Quarterly Earnings

Yesterday evening, SPH REIT (SGX: SK6U) released its financial results for the quarter ended 30 November 2014. This is actually the first quarter of its financial year ending 31 August 2015 (FY2015).

SPH REIT is a real estate investment trust focusing on retail properties; currently, it has both Paragon and the Clementi Mall in its portfolio. The two malls were hived off from newspaper publisher Singapore Press Holdings Limited  (SGX: T39) in July 2013 and injected into the then newly-created SPH REIT. The well-known newspaper publisher is also the sponsor and majority owner of SPH REIT.

Coming back to SPH REIT’s financials, for the reported quarter, gross revenue increased 1.8% year-on-year to S$50.6 million, while net property income (NPI) was 4.9% higher at S$37.9 million. The increase in both gross revenue and NPI was due to higher rental income and proactive management of expenses in both Paragon and The Clementi Mall”.

As a result of the above, investors would be delighted to know that the REIT’s distribution per unit (DPU) for the quarter went up from 1.30 Singapore cents last year to 1.33 Singapore cents, an increase of 2.3%. At SPH REIT’s closing price of S$1.04 on Monday, it now has an annualised distribution yield of around 5%.

As of 30 November 2014, the REIT’s gearing ratio clocked in at 26%, unchanged from where it was at the end of FY2014. Meanwhile, the average cost of SPH’s borrowings was at 2.35%, and that’s a slight increase from the figure of 2.33% seen at the end of FY2014.

The change in the REIT’s cost of borrowings might be one area for investors to look out for as any rise in interest rates may sting its bottom-line and DPU. With the REIT having S$250 million worth of borrowings with floating interest rates to refinance in 2016 (for some perspective, SPH REIT has total borrowings of S$850 million), investors might be keen to find out if the REIT can refinance at attractive rates.

On the operational front, investors might be happy to note that SPH REIT’s property portfolio is 100% occupied and had experienced very healthy rental reversions of a positive 12.4%. The REIT also commented that “visitor traffic [had] held steady year-on-year” for the quarter.

Ms Susan Leng, Chief Executive Officer of SPH REIT’s Manager, commented on the REIT’s performance:

We are pleased that SPH REIT has continued to turn in a steady performance, amidst a modest domestic economic outlook and challenging retail environment. We are confident that the well-established positioning of both properties, firm partnership with our tenants and philosophy of continual asset enhancement will enable us to be at the forefront of the competitive retail arena and deliver sustainable returns to unitholders. The chiller decanting project at Paragon is progressing on schedule. In addition, the tenancies for the newly-created net lettable space of about 5,000 square feet have been committed and will contribute close to S$1 million of rental income annually from FY2016 onwards.”

Going forward, other than the “chiller decanting project” mentioned earlier, the newly opened retail complex The Seletar Mall, which was co-developed by SPH and United Engineers Limited (SGX: U04), could be pumped into the REIT. This could help boost DPU at SPH REIT in the future. The mall, which was opened only in November last year, currently has a committed occupancy rate of 99.6%.

SPH REIT is now valued at 1.12 times its latest book value of S$0.93 at its closing price on Monday.

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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.