SPH REIT’s Latest Earnings: Distributions Flatline, Again

Yesterday evening, SPH REIT (SGX: SK6U) had released its second-quarter earnings report for its fiscal year ending 31 August 2016 (FY2016). The reporting period was from 1 December 2015 to 29 Feb 2016.

As a brief background for context, the REIT is an owner of two retail malls in Singapore, namely Paragon and Clementi MallSingapore Press Holdings Limited  (SGX: T39) is both the main shareholder and sponsor for SPH REIT.

You can catch up with the results from the REIT’s last quarter here.

Financial highlights

The following’s a quick rundown on the important financial figures for SPH REIT:

  1. Gross revenue was $53.1 million for the reporting quarter, up 1.2% from a year ago.
  2. Net property income (NPI) rose by 0.9% year-on-year to $40.6 million.
  3. Distribution per unit (DPU) for the reporting quarter came in at 1.40 cents, unchanged from the same quarter in the last fiscal year.
  4. The valuation of SPH REIT’s properties stood at $3.21 billion as of 31 August 2015. The REIT ended the reporting quarter with a net asset value per unit of $0.94, a slight increase from the $0.93 seen a year ago.

Income support, a factor to watch for REITs, dropped by 37% year-on-year to $478,000 for SPH REIT in the reporting quarter. The income support was about 1% of the NPI.

Foolish investors might also want to keep an eye on the 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 summarised for SPH REIT below:

SPH REIT balance sheet table
Source: SPH REIT’s presentation slides

$250 million in borrowings will come due in 2016. Investors may want to observe how the REIT’s cost of debt will be impacted from the refinancing of the due-debt. Over the past year, SPH REIT’s cost of debt had increased from 2.50% to 2.84%. The weighted average term to maturity also declined to 2.4 years.

On the other hand, SPH REIT’s fairly low gearing ratio of 26.0% a year ago had stepped down even further to 25.7%. This can likely give the REIT some room to take on more debt in the future.

Operational highlights

Clementi Mall ended the reporting quarter with full occupancy. Paragon was close with an occupancy rate of 99.9%. SPH REIT’s top-line growth in the quarter came from Paragon, which saw an increase in gross revenue from $83.5 million a year ago to $85.6 million in the reporting quarter. In contrast, The Clementi Mall’s revenue was flat at $19.6 million. From an NPI perspective, both properties put up about 3% growth.

Investors should note that a large part of The Clementi Mall’s leases (84.5% of total gross rental income) is set to expire in FY2017. This is worth keeping an eye on. Paragon has a more staggered lease expiry profile with up to 20.5% of its leases by gross rental income expiring only in FY2020 and beyond.

SPH REIT also reported that visitor traffic to its portfolio in the first-half of FY2016 had “held steady year-on-year.”

Susan Leng, the chief executive of SPH REIT’s manager, had given the following comments in the earnings release for the reporting quarter:

“SPH REIT has continued to deliver a steady performance amid modest economic outlook and challenging retail environment. Paragon achieved healthy rental reversion, despite several quarters’ of rental decline reported for Orchard Road. We are pleased to welcome several retailers which strengthen and refresh Paragon’s fashion and food & beverage (F&B) offerings. The Clementi Mall continues to gain traction as a necessity mall in an established population catchment area.

We remain focused on opportunities to create value and strengthen long-term sustainability of the properties. The Air Handling Unit (AHU) decanting project at Paragon is progressing on schedule. The planning for The Clementi Mall’s reconfiguration project, primarily at basement, is underway. 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 $0.97 on Monday. This translates to a price-to-book ratio of a little over one and a trailing 12 months distribution yield of around 5.6%.

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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.