10 Things Investors Should Know About SPH REIT’s Second Quarter Earnings

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).

Last Friday, SPH REIT announced its financial results for the second quarter ended 28 February 2018. Here are 10 things investors should know from the earnings announcement:

1. Gross revenue for the latest quarter slipped 0.8% year-on-year to S$53.6 million on the back of lower rental income at Paragon.

2. Net property income fell 1.1% to S$42.3 million mainly due to the impact from Paragon.

3. Income available for distribution tumbled 3.3% to S$36.1 million.

4. However, distribution to unitholders inched up 0.6% to S$35.9 million, and distribution per unit was steady at 1.40 Singapore cents.

5. The net asset value per unit came in at S$0.94 for the quarter, a fall from S$0.95 at the end of August 2017.

6. As at 28 February 2018, the retail REIT clocked in a gearing ratio of 25.4%, unchanged from that on 31 August 2017. The weighted average term to maturity was 2.2 years, and the average cost of debt came in at 2.84% per annum.

7. The rental reversion for the overall portfolio was a negative 1%. Paragon saw a rental reversion of -7.1% for new and renewed leases for the second quarter. The REIT said the lower rental reversion at Paragon was “mainly due to negotiations during the retail sales downturn since 2014”. Meanwhile, The Clementi Mall, which had three tenancy changes, recorded a 2.5% fall in rental rates.

8. The weighted average lease expiry by gross rental income and net lettable area was 2.1 years, as at 28 February 2018.

9. Both Paragon and The Clementi Mall saw growth in tenant sales even though visitor traffic held steady. The REIT said that the higher tenant sales were in line with the recent recovery in retail sales since June 2017. The retail sales index (excluding motor vehicles) increased by 2.5% year-on-year in the 2017 second quarter (Q2 2017), 2.4% in Q3 2017 and 1.2% in Q4 2017. Both properties have full occupancy.

10. The chief executive of the REIT’s manager, Susan Leng, commented on the REIT’s latest performance and its outlook:

“SPH REIT has delivered stable distribution and our well-positioned malls continued their track record of full occupancy. In keeping with our philosophy of treating tenants as business partners, we will work closely with them to ride through both cyclical and structural challenges in the retail environment. It is encouraging that our tenant sales have continued to register growth. The tourist arrivals and spend for 2017 ended on a positive note and we believe Paragon would stand to benefit with this trend. The forecasted GDP growth of “1.5% to 3.5%” bodes well for Singaporeans and The Clementi Mall is well poised in the suburban to continue to serve its immediate catchment. Our focus remains to drive long-term value of our properties and deliver sustainable returns for our unitholders.”

The REIT’s units closed at S$1.00 on Friday, giving a price-to-book ratio of 1.06 and a trailing distribution 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.