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SPH REIT’s Latest Earnings: What Investors Should Know

Credit: SPH REIT Management Pte Ltd.

SPH REIT (SGX: SK6U) is a retail real estate investment trust (REIT) that has interests in Paragon and The Clementi Mall. The REIT’s sponsor is media giant, Singapore Press Holdings Limited (SGX: T39).

Yesterday, SPH REIT announced its financial results for the year ended 31 August 2017 (FY2017). The reporting period was from 1 September 2016 to 31 August 2017.

Here’s a quick rundown on the financial figures from the earnings release:

1. Gross revenue for FY2017 grew 1.5% year-on-year to S$212.8 million, due to higher rental income.

2. Net property income (NPI) increased 4.5% to S$168.1 million, largely on the back of better cost controls.

3. FY2017’s distribution per unit (DPU) came in at 5.53 cents, edging up from 5.50 cents seen a year back.

4. The net asset value (NAV) per unit was at S$0.95, as at 31 August 2017. This is a slight increase from FY2016’s figure of S$0.94.

Both Paragon and The Clementi Mall continued having 100% occupancy despite the muted retail environment. Rental reversion for the portfolio was at a commendable 1.2% for new and renewed leases in FY2017.

It was a mixed bag, however, if we home in on the individual properties in the portfolio.

Rental reversion at Paragon was down 0.8%. Its visitor traffic was maintained at 18.3 million while tenant sales grew by 2.1% to S$675 million. The occupancy cost was at 19.6%.

Over at The Clementi Mall, it had a positive rental reversion of 3.7%. Visitor traffic fell 0.3% to 29.9 million while tenant sales declined by 5.8% to S$225 million. The occupancy cost came in at 15.8%.

As at 31 August 2017, the trust had a gearing ratio of 25.4%, with an average cost of debt at 2.82%. 85.9% of the S$850m debt facility was on a fixed rate basis, helping to mitigate the risks from interest rate rises in the future. The weighted average term to maturity of the outstanding debt is at 2.1 years.

Looking ahead, Susan Leng, Chief Executive Officer of the REIT’s manager, said:

“[W]e will continue to invest in asset enhancement to remain relevant and improve shopper experience. During the year, Paragon commenced the second phase of its Air Handling Units decanting project involving the creation of additional lettable area at higher-yielding retail space. This project is expected to be completed by mid-2018.

Concurrently, other opportunities to create value have been identified and details of these projects in the pipeline would be released at the appropriate time.

Barring any unforeseen circumstances, SPH REIT’s two high quality and well-positioned retail properties in prime locations are expected to remain steady and resilient.”

The Seletar Mall, which opened in November 2014, could be a potential acquisition target for SPH REIT. Singapore Press Holdings has given the right of first refusal to the REIT to acquire the property, which has a high occupancy rate since starting business.

SPH REIT ended Monday at S$1.005. This gives a historical price-to-book ratio of 1.06 and a trailing yield of 5.5%.

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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 Sudhan P doesn’t own shares in any companies mentioned.