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3 Quick Things to Learn from SPH REIT’s Annual Report

Credit: SPH REIT Management Pte Ltd.

Reading the annual report of a company or investment trust is a great way to learn more about it.

I had recently read through the latest annual report from SPH REIT  (SGX: SK6U), a real estate investment trust which currently owns two retail properties, namely Paragon and Clementi Mall.

There are several important things I had picked out from the report which may be of interest to investors. Here are three of them:

1. Supporting leases structures  

“Typically, SPH REIT’s leases are structured with three-year tenures comprising base rent and turnover rent which is pegged to tenants’ sales. The turnover rent makes up 2% to 3% of the portfolio’s gross revenue.

To provide for organic growth, 32% of the portfolio’s leases are embedded with step-up clauses which provide for increases in the base rent during the lease term.”

In a similar manner to Frasers Centrepoint Trust  (SGX: J69U), SPH REIT employs a lease structure which includes step-up clauses. This may help provide organic increases to SPH REIT’s rental income over the lease term.

2. Asset enhancement initiatives (AEI)

“Further Asset Enhancement Initiatives in the pipeline include an Air Handling Unit (AHU) decanting project which would see more than 7,000 sq ft of retail net lettable area added to Paragon. The conversion of AHUs to fan coils will take place over three years to minimise disruption to tenants’ trading.”

AEIs have been a good way for SPH REIT to generate more income from its properties. Its previous AEI had freed up 5,000 square feet of space at Paragon and “would contribute close to S$1 million of incremental rental income annually from FY2016 [fiscal year ending 31 August 2016].”

The current AEI, involving the conversion of the AHUs, is expected to free up 7,000 square feet in retail space and potentially result in even more rental income from Paragon in the future.

3. Paragon Medical

“Paragon consists of a six-storey retail podium and one basement level with 488,856 sq ft of retail NLA (“Paragon Mall”) with a 14-storey tower and another three-storey tower sitting on top of the retail podium with a total 225,443 sq ft of medical suite/office NLA (“Paragon Medical”).”

Paragon is not only about retail. It also has Paragon Medical attached to the retail area.

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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 owns shares in Frasers Centrepoint Trust.