SPH REIT’s Latest Earnings: What Investors Should Know

Credit: SPH REIT Management Pte Ltd.

SPH REIT (SGX: SK6U) released its fiscal third-quarter earnings report yesterday. The reporting period was from 1 March 2016 to 31 May 2016.

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 SPH REIT’s last quarter in here.

Financial highlights

The following’s a rundown on some of the REIT’s latest financial figures:

  1. Gross revenue was $52.2 million for the reporting quarter, up 1.9% from a year ago.
  2. Net property income (NPI) rose by 1.8% year-on-year to S$40.0 million.
  3. SPH REIT managed to benefit from the higher revenue. Its distribution per unit (DPU) for the reporting quarter was 1.36 cents, up by 0.7% from the third-quarter of the last fiscal year.
  4. The valuation of the REIT’s properties stood at $3.2 billion as of 31 August 2015. SPH REIT ended the reporting quarter with a net asset value per unit of $0.94, up a tick from the $0.93 seen a year ago.

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

2016-07-08 SPH REIT Debt Table
Source: SPH REIT’s presentation

Over the past year, SPH REIT’s cost of debt has increased from 2.6% to 2.84%. The weighted average term to maturity has also declined to 2.2 years; SPH REIT expects this to increase when the refinancing of its 2016 debt obligations are completed.

SPH REIT currently maintains a low gearing ratio of 25.7% which gives it room to take on more borrowings to expand in the future.

Operational highlights

The Clementi Mall and Paragon both reported 100% occupancy rates. The REIT’s top-line growth came from Paragon, which saw an increase in gross revenue from $125 million in the fiscal third-quarter last year to $128.1 million in the reporting quarter. In contrast, Clementi Mall’s revenue was flat at $29.3 million.

From a NPI perspective, Paragon and Clementi Mall recorded 3% and 1.9% year-on-year growth, respectively.

Investors should note that a large part of Clementi Mall’s leases by gross rental income (almost 78%) is set to expire in the fiscal year ending 31 August 2017. The mall’s lease renewal progress is worth keeping an eye on.

Susan Leng, the chief executive of SPH REIT’s Manager, had the following comments in the earnings release:

“We are pleased that SPH REIT properties are operating at 100% committed occupancy and we have achieved a positive rental reversion of 4.9%. The Asset Enhancement Initiative involving the decanting of Air Handling Units at Paragon are progressing well and we have secured tenancies for all the newly created units ahead of its opening end of this year.

We have received strong demand from retailers for the reconfiguration of Basement 1 at The Clementi Mall. In this exercise, we will create an additional 7 food kiosks giving us a total of 21 kiosks, of which 4 are new food concepts. The revamped food cluster will be a refreshing destination for our shoppers.

Barring any unforeseen circumstances, the two properties are expected to remain resilient, and turn in a steady performance.”

Foolish summary

SPH REIT’s units closed at a price of $0.94 each on Thursday. This translates to a price-to-book ratio of 1 and a trailing 12 months distribution yield of5.8%.

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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.