SPH REIT’s Latest Earnings: Incremental Growth Seen

SPH REIT (SGX: SK6U) released its fiscal second quarter earnings report yesterday. The reporting period was from 1 December 2015 to 28 February 2015.

The REIT is an owner of two retail malls in Singapore, namely Paragon and Clementi Mall. Its main sponsor, manager, and major owner would be Singapore Press Holdings Limited  (SGX: T39).

You can catch up with SPH REIT’s last quarter’s earnings here.

Financial highlights

Here’s a rundown on the REIT’s latest set of financial figures:

  1. Gross revenue rose to $52.6 million in the latest quarter, up about 2.8% from the same quarter a year ago.
  2. Following suit, net property income (NPI) for the second quarter also rose by 3.7% year-on-year. NPI came in at $40.3 million; it was $38.8 million a year ago.
  3. Distribution per unit (DPU) for the quarter will be 1.40 cents, a slight 0.7% increase from the 1.39 cents seen in the second quarter last year.
  4. The REIT’s total portfolio value stands at $3.159 billion (as of 31 August 2014). SPH REIT ended its fiscal second quarter with a net asset value per unit of S$0.93, up from S$0.90 a year ago.

As my fellow Fool Ser Jing shared before, rental support is a factor to be wary of in REITs. In SPH REIT’s case, there was drop in the rental support from $884,000 in the second quarter of 2014 to $756,000 in the reporting quarter.

Foolish investors might also want to keep an eye on a REIT’s debt profile. The debt profile may provide clues on how a REIT is funded and its sensitivity to the interest rate environment. These are summarized below for SPH REIT:

Gearing ratio 26%
Weighted Average Term to Maturity 3.5 years
All-in interest rate 2.50%
Fixed Rate Borrowings 54.7%
Total Borrowings $850 million

Source: SPH REIT’s presentation

For SPH REIT, the real test in flexibility of its funding will come in 2016 and 2018 when $250 million and $300 million in loans, respectively, will have to be repaid.

Operational highlights

Both of the REIT’s properties are fully leased out. New or renewed leases for Paragon saw a rental uplift of 11.6%; unfortunately the selfsame figure for Clementi Mall was -8.8%.

According to management, the downward revision in rental rates in Clementi Mall was due to its effort to fine-tune its tenancies to support a wider base of shoppers. Notably, a large part of Clementi Mall’s leases (86% by gross rental income) will expire in FY2017 (financial year ending 31 August 2017) and that would be worth keeping an eye on.

According to SPH REIT, visitor traffic to its malls for the first half of FY2015 (financial year ending 31 August 2015) “held steady year-on-year.”

Ms Susan Leng, the chief executive of SPH REIT’s manager, added a summary for the quarter below:

“SPH REIT has delivered another quarter of healthy operating and financial performance. Several new-to-market international brands were introduced in Paragon to enhance its premier positioning and refresh the offering to shoppers. The Clementi Mall continues to enjoy strong visitorship and is well-positioned as a necessity mall in an established population catchment area. Barring any unforeseen circumstances, the two retail properties are expected to remain resilient and turn in a steady performance.”

Foolish summary

SPH REIT last traded at S$1.07 on Monday. This translates to a historical price-to-book ratio of 1.15 and a trailing-12-months distribution yield of around 5.1%.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.