SPH REIT (SGX: SK6U) is an owner of two retail malls in Singapore, namely, Paragon and The Clementi Mall. It also owns a leasehold interest in The Rail Mall. Newspaper publisher Singapore Press Holdings Limited (SGX: T39) is the sponsor, manager, and a large unitholder of SPH REIT.
There are two things to know about the REIT right now: its latest financial performance and valuation.
Here is a table showing important items from SPH REIT’s financial performance for the fourth quarter of financial year ended 31 August 2018.
Source: SPH REIT Results Presentation
Net property income declined by 1.9% year-on-year mainly due to lower rental income in Paragon and higher property tax and maintenance expense. This was partially offset by higher contribution from The Clementi Mall and The Rail Mall. As of 31 August 2018, the retail REIT clocked in a gearing ratio of 26.3% while its occupancy rate stood at 99.4%.
Susan Leng, chief executive of the REIT’s manager, said:
“SPH REIT has delivered yet another year of consistent returns to our unitholders and our well-positioned assets continued its track record of close to full occupancy. The resilient performance for five years since listing in 2013 amid retail sales downturn, is a testament to our long-standing philosophy of partnership with our tenants for mutual success. We are pleased that our tenants have registered higher sales and lower occupancy cost.”
There are two useful valuation metrics for assessing REITs. They are the price-to-book (PB) ratio, and the distribution yield.
The table below shows SPH REIT’s PB ratio and distribution yield. It also shows the respective averages for the two valuation metrics for the 42 REITs that are in Singapore’s stock market.
Source: Stock Facts on SGX.com
We can see that SPH REIT’s valuation is at a premium to the market average, both in terms of PB ratio and distribution yield.
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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 Lawrence Nga doesn’t own shares in any companies mentioned.