SPH REIT’s Latest Earnings: Distributions Go Flat

SPH REIT (SGX: SK6U) released its fiscal third-quarter earnings report yesterday evening for the fiscal year ending on 31 August 2015 (FY2015). The reporting period was from 1 March 2015 to 31 May 2015.

The real estate investment trust is an owner of two retail malls in Singapore, namely Paragon and Clementi Mall. Its main sponsor and shareholder 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 financial figures:

  1. Gross revenue rose to $51.2 million in the reporting quarter, up about 1.6% from the same quarter a year ago.
  2. Following suit, net property income (NPI) for the quarter stepped up by 4.3% year over year to $39.3 million.
  3. Despite the growth in NPI, SPH REIT’s distribution per unit (DPU) for the quarter was maintained at 1.35 cents, unchanged from the same quarter a year ago.
  4. The valuation of SPH REIT’s properties stands at $3.16 billion as of 31 August 2014.
  5. SPH REIT ended its fiscal third-quarter with an adjusted net asset value (NAV) per unit of $0.93, up 3.3% from S$0.90 seen a year ago.

As my fellow Fool Chong Ser Jing has 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 $1.1 million in the third-quarter of FY2014 to $640,000 in the reporting quarter. Rental support, though, is not a major contributor to SPH REIT’s bottom-line as compared to its NPI.

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 for SPH REIT in the table below:

Gearing ratio 26%
Weighted average term to maturity 3.2 years
All-in interest rates 2.6%
Percentage of fixed rate borrowings 85%
Total borrowings $850 million

Source: SPH REIT’s earnings presentation

In the reporting quarter, SPH REIT had managed to increase the percentage of its borrowings with fixed interest rates to 85% from 55% in the previous quarter. This may help the REIT weather any possible short term increases in interest rates.

Operational highlights

Portfolio occupancy for the quarter fell slightly to 99.8% as compared to the full occupancy seen in the previous quarter. New or renewed leases for Paragon saw a rental uplift of 9.8% but the selfsame figures for Clementi Mall came in at a negative 11.4%.

Management cited its continuing efforts to balance the tenancy mix for Clementi Mall as the reason for the fall. It is hoped that an improved tenancy mix will help widen the mall’s base of shoppers.

A large part of Clementi Mall’s leases will expire in FY2017 (85.3% of gross rental income) alone and this is something worth keeping an eye on. As mentioned in the previous earnings report, it will take a few more lease renewal cycles for the tenant lease profile to level out.

Susan Leng, the chief executive of SPH REIT’s manager, had the following comments for the REIT’s latest performance:

“SPH REIT has continued its resilient performance amid challenging retail environment. Our asset enhancement program will create additional lettable space which enables us to work with some tenants to expand their presence thereby strengthening their positions in Singapore.

We also took this opportunity to introduce new tenants to refresh the mall’s offering and to enhance shoppers’ experience. We remain focused on our strategy to continually revitalise tenant mix, thereby maintaining relevance and elevating the positioning of the properties. Barring any unforeseen circumstances, the two properties are expected to remain resilient and turn in a steady performance.”

Foolish summary

SPH REIT last traded at S$1.04 on Tuesday. This translates to a historical price-to-book ratio of 1.12 and a trailing twelve months distribution yield of around 5.3%.

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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.