SPH Reit

OCBC on 13 Sep 2015

SPH REIT reported its 4QFY15 results which came in within our expectations. DPU was flat YoY at 1.39 S cents on the back of a mild 0.6% decline in gross revenue to S$50.8m, although the former was boosted by a distribution from income retained earlier in the financial year. Both Paragon and The Clementi Mall delivered positive gross revenue and NPI growth in FY15. Overall portfolio committed occupancy and rental reversion were solid at 100% and 8.6%, respectively. Rental reversions at Paragon stayed positive at 9.1% for FY15, but continued to moderate. The Clementi Mall’s rental reversion came in at -5.6% for the full-year, but was a big improvement from the -11.4% registered for 9MFY15, implying a robust performance in 4QFY15. We fine-tune our assumptions but maintain our HOLD rating and S$0.99 fair value estimate on SPH REIT as we see limited potential total returns ahead.

4QFY15 results met our expectations
SPH REIT reported its 4QFY15 results which came in within our expectations. DPU was flat YoY at 1.39 S cents on the back of a mild 0.6% decline in gross revenue to S$50.8m, although the former was boosted by a distribution of S$1.6m from its taxable income available for distribution which was retained in 9MFY15. For FY15, SPH REIT’s revenue came in at S$205.1m, which was 1.4% higher than FY14 (comparative period from 1 Sep 2013 to 31 Aug 2014); while DPU of 5.47 S cents represented an increase of 0.7%. These constituted 99.6% and 101.6% of our full-year projections, respectively.

Portfolio rental reversion of 8.6%; 100% committed occupancy
Both Paragon and The Clementi Mall delivered positive gross revenue and NPI growth in FY15. Overall portfolio committed occupancy and rental reversion were solid at 100% and 8.6%, respectively. Rental reversions at Paragon stayed positive at 9.1% for FY15, but continued to moderate (9MFY15: 9.8%, 1HFY15: 11.6%, 1QFY15: 12.5%), given the challenging retail scene. The Clementi Mall’s rental reversion came in at -5.6% for the full-year, but was a big improvement from the -11.4% registered for 9MFY15, implying a robust performance in 4QFY15. In terms of shopper traffic, Paragon and The Clementi Mall achieved positive growth of 2.0% and 4.7% to 18.8m and 30.8m, respectively, in FY15. Tenant sales for The Clementi Mall rose 3.6% to S$242m, but were down 3.2% to S$657m for Paragon, primarily due to fitting-out works as part of its tenancy revitalisation program. 

Keeping our HOLD rating
SPH REIT’s gearing remained healthy at 25.7%, which we believe is the lowest within the S-REITs universe. 84.7% of its S$850m debt facility is on a fixed rate basis, thus mitigating its risk to interest rate fluctuations. We fine-tune our assumptions but maintain our HOLD rating and S$0.99 fair value estimate on SPH REIT as we see limited potential total returns ahead. The stock is trading at FY16F P/B ratio of 1.02x and distribution yield of 5.7%.

SPH REIT

OCBC on 14 Jul 2015

SPH REIT recently reported a flattish set of 3QFY15 results which met our expectations. DPU came in unchanged on a YoY basis at 1.35 S cents, despite a mild 1.6% growth in gross revenue to S$51.2m. Overall portfolio occupancy remained healthy at 99.8%, as at 31 May 2015, while portfolio rental reversion for SPH REIT was 9.2% for 9MFY15 (Paragon: +9.8%; The Clementi Mall: -11.4%). SPH REIT’s gearing remained stable at 26.0%. Management also increased its interest rate hedge ratio from 55% to 85%. This resulted in a higher cost of debt of 2.55% (1HFY15: 2.5%), while finance expenses also rose 15.7% QoQ to S$5.8m due to costs associated with the interest rate swaps. We retain our forecasts, HOLD rating and S$0.99 fair value estimate on SPH REIT. The stock is trading at FY15F P/B ratio of 1.1x and distribution yield of 5.2%, which are largely in-line with its historical averages since its IPO.

3QFY15 DPU unchanged YoY
SPH REIT recently reported a flattish set of 3QFY15 results, with DPU coming in unchanged on a YoY basis at 1.35 S cents, despite a mild 1.6% growth in gross revenue to S$51.2m. Paragon and The Clementi Mall both saw a stronger percentage increase in NPI than in gross revenue, underpinned by lower maintenance expenses and savings in utilities. For 9MFY15, SPH REIT’s revenue came in at S$154.3m (+2.1%), while DPU of 4.08 S cents represented an increase of 1%. The former and latter constituted 75% and 75.9% of our FY15 projections, respectively, and was within our expectations. YTD, management has retained S$2.1m of taxable income available for distribution. This would be distributed to unitholders in the future.

Negative rental reversions at The Clementi Mall
Overall portfolio occupancy remained healthy at 99.8%, as at 31 May 2015, despite an unexpected lease termination of an office unit in Paragon. Paragon has subsequently become fully-committed again. Rental reversions at Paragon continued to stay positive at 9.8% for 9MFY15, but this was lower than the 11.8% achieved in 1HFY15, which implies a moderation in rental renewal growth rates in 3QFY15. This is unsurprising given the soft retail sentiment. The Clementi Mall’s rental reversion came in at -11.4% for 9MFY15, a deterioration from the -8.8% recorded in 1HFY15. We understand that this was partly due to management’s efforts to retain an existing tenant by offering more competitive rental rates. Overall portfolio rental reversion for SPH REIT was 9.2% for 9MFY15.

Maintain HOLD
SPH REIT’s gearing remained stable at 26.0%. Management also increased its interest rate hedge ratio from 55% to 85%. This resulted in a higher cost of debt of 2.55% (1HFY15: 2.5%), while finance expenses also rose 15.7% QoQ to S$5.8m due to costs associated with the interest rate swaps. We retain our forecasts, HOLD rating and S$0.99 fair value estimate on SPH REIT. The stock is trading at FY15F P/B ratio of 1.1x and distribution yield of 5.2%, which are largely in-line with its historical averages since its IPO.

SPH REIT

OCBC on 14 Apr 2015

SPH REIT reported a stable set of 2QFY15 results, with gross revenue and DPU increasing by 2.8% and 0.7% YoY to S$52.5m and 1.40 S cents, respectively. This was within our expectations. During 1HFY15, SPH REIT achieved positive rental reversions of 11.6% at Paragon. On the other hand, negative rental reversions of 8.8% were registered for The Clementi Mall. This was largely due to a strategic move by SPH REIT to offer a popular F&B outlet competitive rental rates, which management believes will be mitigated by the outlet’s appeal to draw more shoppers to the mall. Overall rental reversions of 11.0% were recorded for SPH REIT’s combined portfolio. Looking ahead, Singapore’s retail operating environment remains challenging, but this is buffered by SPH REIT’s healthy gearing ratio of 26.0%. We maintain our forecasts, HOLD rating and S$0.99 fair value estimate on SPH REIT.

2QFY15 results within our expectations
SPH REIT reported a stable set of 2QFY15 results, with gross revenue and DPU increasing by 2.8% and 0.7% YoY to S$52.5m and 1.40 S cents, respectively. This came in within our expectations. Growth was driven by higher rental income achieved at both Paragon (revenue +3.1%; NPI +4.1%) and The Clementi Mall (revenue +1.3%; NPI +1.9%). For 1HFY15, gross revenue rose 2.3% to S$103.1m, forming 50.1% of our FY15 forecast; while DPU of 2.73 S cents represented a slight growth of 1.5% and constituted 50.8% of our full-year projection. 

Tenancy fine-tuning affected rental reversions at Clementi Mall
During 1HFY15, SPH REIT achieved positive rental reversions of 11.6% at Paragon, which we believe reflects the scarcity premium of prime retail space despite industry headwinds. On the other hand, negative rental reversions of 8.8% were registered for The Clementi Mall’s rental renewals/new leases. Notwithstanding the disappointing headline figure, this was contributed by only six leases which formed 2% of The Clementi Mall’s NLA. Management further explained that out of these six leases, five had actually achieved positive rental reversions. The only negative reversion was due to a strategic move to offer a popular F&B outlet competitive rental rates, which SPH REIT believes will be mitigated by its appeal to a wider base of shoppers. Overall rental reversions of 11.0% were recorded for SPH REIT’s combined portfolio.

Muted outlook; valuations unappealing
Looking ahead, Singapore’s retail operating environment remains challenging, but this is buffered by SPH REIT’s healthy gearing ratio of 26.0%. 54.7% of its total debt is on a fixed rate basis. Management is cognisant of the recent spike in the SOR and SIBOR, and highlighted that it will continue to monitor the situation before deciding on whether to increase its hedges. Its average cost of debt stands at 2.5%, versus 2.35% as at 1QFY15. We maintain our forecasts, HOLD rating and S$0.99 fair value estimate on SPH REIT. The stock is trading at FY15F P/B ratio of 1.14x and distribution yield of 5.0%, which does not appear attractive, in our view.

SPH Reit

OCBC on 13 Jan 2015

 SPH REIT reported its 1QFY15 results which were in-line with our expectations. Revenue inched up 1.8% YoY to S$50.6m on the back of higher rental income. Distribution to unitholders and DPU grew 2.9% and 2.3% to S$33.5m and 1.33 S cents, respectively, with the latter constituting 24.4% of our full-year projection. Overall rental reversions of 12.4% were achieved for its portfolio in 1QFY15, driven largely by Paragon (+12.5%). Asset enhancement initiatives at Paragon will create additional space and provide incremental rental income to SPH REIT upon completion. Looking ahead, headwinds facing the retail sector will continue to pose challenges to the operating landscape. Nevertheless, average prime retail rents in Orchard Road still managed to increase marginally by 1% on a YoY and QoQ basis to S$34.55 psf pm in 4QCY14, according to CBRE. We maintain our HOLD rating and S$0.99 fair value estimate on SPH REIT, as we believe its current valuations look fully priced.

1QFY15 results came in within our expectations
SPH REIT reported its 1QFY15 results which were in-line with our expectations. Revenue inched up 1.8% YoY to S$50.6m on the back of higher rental income. This formed 24.6% of our FY15 forecast. Distribution to unitholders and DPU grew 2.9% and 2.3% to S$33.5m and 1.33 S cents, respectively, with the latter constituting 24.4% of our full-year projection. 

Healthy rental reversions achieved
Both SPH REIT’s Paragon and The Clementi Mall remained fully leased. Overall rental reversions of 12.4% was achieved for its portfolio in 1QFY15, driven largely by Paragon (+12.5%) and marginally by The Clementi Mall (+2.3%), although the latter had only one lease renewal during the quarter. In terms of asset enhancement initiatives, the chiller decanting project at Paragon will create an additional 5,000 sq ft of NLA when it is completed by FY16. Tenancies for the new space have already been committed and are expected to contribute an incremental rental income of close to S$1m per annum. Management is also carrying out planning works to create another NLA of 5,000 sq ft at Paragon. This would be phased in from FY16.

Maintain HOLD
Looking ahead, headwinds facing the retail sector will continue to pose challenges to the operating landscape. Nevertheless, average prime retail rents in Orchard Road still managed to increase marginally by 1% on a YoY and QoQ basis to S$34.55 psf pm in 4QCY14, according to CBRE. This highlights the attractiveness and value of assets which are strategically located in good catchment areas. We maintain our HOLD rating and S$0.99 fair value estimate on SPH REIT, as we believe its current valuations look fully priced. The stock is trading at FY15F P/B of 1.1x and distribution yield of 5.2%, versus its retail peers’ forward P/B of 1.0x and distribution yield of 6.1%.

SPH REIT

OCBC on 14 Jul 2014

SPH REIT reported its 3QFY14 results last Fri, with DPU registering 1.35 S cents (+2.7% YoY). Coupled with 1H distribution, 9MFY14 DPU totaled 4.60 S cents. This exceeded its prospectus forecast of 4.46 S cents by 3.1%, but came in largely within our expectations. We understand that both Paragon and The Clementi Mall remained fully leased, and that an average positive rental reversion of 8.4% was achieved for the 9M period. Management also shared that it has identified three asset enhancement initiatives at Paragon, which is expected to generate an estimated NLA of 10,000 sqft (to be phased in from FY16) and improve the operational efficiency of the mall. SPH REIT currently has a strong balance sheet, with gearing and cost of debt unchanged QoQ at 26.9% and 2.33% respectively. We make only minor adjustments to our forecasts as the quarterly showing is consistent with our expectations. Retain HOLD with unchanged fair value of S$0.99.

3QFY14 results within view
SPH REIT reported its 3QFY14 results last Fri, with NPI up 2.4% YoY to S$37.7m. The better performance was driven by a 2.1% growth in gross revenue at Paragon, and lower utilities and marketing expenses within the portfolio. Distributable income also rose by 2.4% to S$33.9m. As a result, DPU registered 1.35 S cents for the quarter (+2.7%). Coupled with 1H distribution, 9MFY14 DPU totaled 4.60 S cents. This exceeded its prospectus forecast of 4.46 S cents by 3.1%, but came in largely within our expectations (forming 76.0% of our full-year DPU projection).

Portfolio sturdy as ever
We understand that both Paragon and The Clementi Mall remained fully leased. For the 365,913 sqft NLA (40.6% of portfolio NLA) of leases expiring in the 9M period, an average positive rental reversion of 8.4% was achieved (Paragon: 11.5%; Clementi Mall: 5.1%). This was a tad lower than the 10.8% rental uplift saw in 1H, but still very healthy in our view. Management disclosed that shopper traffic has held steady YoY, and that Clementi Mall has added several new tenants including Coffee Kaki, Rubi Shoes and Ogawa. Going forward, however, SPH REIT reiterated that the continuing manpower crunch is expected to weigh on the growth in some labour-intensive sectors and take a toll on expansion plans of retailers. Nevertheless, it expects its portfolio to continue to turn in steady performance, as it continually optimizes the tenant mix of its malls.

Retain HOLD on valuation grounds
Management also shared that it has identified three asset enhancement initiatives at Paragon, which is expected to generate an estimated NLA of 10,000 sqft (to be phased in from FY16) and improve the operational efficiency of the mall. We note that SPH REIT’s sponsor pipeline property, The Seletar Mall, is slated for completion in Dec 2014. SPH REIT currently has a strong balance sheet, with gearing and cost of debt unchanged QoQ at 26.9% and 2.33% respectively. We make only minor adjustments to our forecasts as the quarterly showing is consistent with our expectations. Retain HOLD with unchanged fair value of S$0.99.

SPH Reit

CIMB Research, June 30

USING DDM-based (discount rate of 7.7 per cent), we arrive at a target price of S$1.06, translating into implied CY2014 yields of 5.4 per cent for unitholders. We deem this fair against listed peers such as CMT, FCT and MCT, which trade at CY2014 yields of about 5.6-5.7 per cent.

SPH Reit is a retail Reit with two quality and well-located assets in Singapore valued at a total of S$3.2 billion. They are: 1) Paragon, a premier upscale mall and medical suites/office property in the heart of Orchard Road, and 2) Clementi Mall, a mid-market suburban mall located in the centre of Clementi town.

We believe that the portfolio offers a unique combination of prime Orchard Road and stable suburban retail, and an alternative play on rising medical tourism in Singapore.

We expect Paragon to benefit from the government's positioning of Singapore as a top luxury lifestyle destination and from the nation's expanding medical tourism. Meanwhile, Clementi Mall offers stable suburban retail exposure, further enhanced by a five-year income support.

With an asset leverage of 26.9 per cent, SPH Reit has a debt headroom of about S$415 million to 40 per cent asset leverage for acquisitions. Key pipeline asset includes The Seletar Mall, which is slated for completion by end-2014.

Given its good mix of stability and room for growth, we initiate coverage on SPH Reit with an "add" rating and target price of S$1.06.

ADD

SPH REIT

OCBC on 9 Apr 2014

SPH REIT reported 2QFY14 DPU of 1.39 S cents, ahead of its prospectus forecast of 1.33 S cents by 4.5%. Together with 1Q distribution, 1HFY14 DPU amounted to 3.25 S cents. This met 50.8% of our FY14F DPU, which we deem to be consistent with our expectations. We note that SPH REIT’s portfolio continued to exhibit resilience. For 1HFY14, SPH REIT achieved positive rental reversion of 10.8% for its portfolio, driven by rental uplift of 13.6% at Paragon and 5.1% at Clementi Mall. In addition, shopper traffic has held steady at Paragon, while that at Clementi Mall increased 2.7% YoY. Looking ahead, SPH REIT is keeping its view that it will continue to deliver steady performance. We are keeping our forecasts and S$0.99 fair value unchanged, as the results were in line with expectations. Maintain HOLD.

2QFY14 results within expectations
SPH REIT turned in a sturdy set of 2QFY14 results last evening. NPI came in 8.6% higher than the pro forma figure in previous year at S$38.8m, while distributable income grew 9.4% YoY to S$34.9m. The positive variance was due to higher rental income from both Paragon and Clementi Mall, and lower utilities expenses. As a result, DPU for the quarter rose by a similar 8.6% YoY to 1.39 S cents, ahead of its prospectus forecast of 1.33 S cents by 4.5%. Together with 1Q distribution, 1HFY14 DPU amounted to 3.25 S cents (+5.5% YoY), 3.2% above prospectus forecast. This met 50.8% of our FY14F DPU, which we deem to be consistent with our expectations.

Robust operational performance
SPH REIT’s portfolio continued to exhibit resilience during the quarter. Both retail malls saw improvements in NPI YoY and remained fully leased. For 1HFY14, SPH REIT also achieved positive rental reversion of 10.8% for its portfolio, driven by rental uplift of 13.6% at Paragon and 5.1% at Clementi Mall. In addition, shopper traffic has held steady at Paragon, while that at Clementi Mall increased 2.7% YoY. The only slight disappointments for an otherwise robust performance were the 1) slight decline in recent tenant sales at Paragon in tandem with the softening of the luxury market; and 2) continued tight labour market which may hamper expansion plans by retailers. However, management shared that the situation is still far from worrying and that the strong lease commitment by its tenants is a strong testament to its quality portfolio properties. 

Maintain HOLD on valuation grounds
Looking ahead, SPH REIT is keeping its view that it will continue to deliver steady performance. We understand that the development of its ROFR property, The Seletar Mall, is on track for completion in Dec 2014. Its balance sheet remains strong, with gearing at 26.9% and cost of debt at 2.33%. This gives SPH REIT ample debt headroom for growth. We are keeping our forecasts and S$0.99 fair value unchanged, as the results were in line with expectations. Maintain HOLD.

SPH Reit

OCBC on 10 Jan 2014

SPH REIT reported DPU of 1.86 S cents for the period from 24 Jul (listing date) to 30 Nov 2013. This is largely consistent with our projection of 1.84 S cents. The better performance was mainly attributable to higher rental rates at Paragon and stable income from Clementi Mall. In addition, both malls retained their 100% committed occupancy track record. SPH REIT’s keen eye for capital management has also enabled it to establish a well-staggered debt profile and long weighted average term to maturity of 4.8 years. Moreover, ~54.7% of its interest rate exposure has been fixed, which will alleviate any negative impact of rising rates to its DPU. We continue to like SPH REIT for its unique exposure to the upscale and suburban retail market and healthcare services sector. However, as the stock appears to be fairly priced relative to our fair value of S$0.99, we maintain our HOLD rating.

Steady inaugural performance
SPH REIT announced its maiden set of results last evening. For the period from 24 Jul (listing date) to 30 Nov 2013, SPH REIT posted an NPI of S$51.4m and distributable income of S$46.5m. This was up 1.8% and 3.2% from the respective pro forma figures for the same period last year. DPU for the period came in at 1.86 S cents, slightly ahead of both its pro forma DPU of 1.80 S cents for previous corresponding period and prospectus forecast of 1.82 S cents, but we judge it to be consistent with our projection of 1.84 S cents. Based on the last closing price, this translates to an annualized yield of 5.3%.

Both malls maintained strong operational metrics
The growth was mainly attributable to higher rental rates at Paragon and stable income from Clementi Mall. Both malls also retained their 100% committed occupancy track record. In addition, Paragon achieved robust rental reversion of 12.4% during the reporting period. While Clementi Mall saw a slight negative reversion of 1.9% due to fine-tuning of its tenancy mix, leasing activities have remained strong, as evidenced the commitment of over 90% of its tenants for a second lease term. Shopper traffic for the first 11 months of 2013 also grew by 9.3% as compared to the same period in 2012. This is likely to keep the leasing demand at the mall resilient in our view.

Maintain HOLD on valuation grounds
SPH REIT’s gearing ratio as at 30 Nov 2013 stood at 26.7%, representing an improvement from its pro forma gearing of 27.3%, while its average cost of debt remained robust at 2.33%. SPH REIT’s keen eye for capital management has enabled it to establish a well-staggered debt profile and long weighted average term to maturity of 4.8 years. ~54.7% of its interest rate exposure has also been fixed, which will alleviate any negative impact of rising rates to its DPU. Based on our sensitivity analysis, a 1ppt increase in interest rate may reduce its DPU by 2.6%. We continue to like SPH REIT for its unique exposure to the upscale and suburban retail market and healthcare services sector. However, as the stock appears to be fairly priced relative to our fair value of S$0.99, we maintain our HOLD rating.

SPH Reit

OCBC on 22 Nov 2013

SPH REIT is a Singapore-based REIT established principally to invest in a portfolio of income-producing real estate used primarily for retail purposes in Asia-Pacific. The initial portfolio comprises two commercial properties in Singapore, namely Paragon, upscale retail mall and medical suite/office property, and The Clementi Mall, a mid-market suburban mall. We like SPH REIT’s exposure to the local retail landscape as the outlook is expected to remain robust, bolstered by growing retail sales, rising visitor arrivals, an expanding population and comfortable supply of retail space. In addition, the underlying growth drivers for the regional healthcare scene are expected to remain strong. Since its listing, we note that SPH REIT has enjoyed a strong run-up in unit price of 8.9%, significantly outperforming the FTSE ST REIT Index over the same period. At current price, SPH REIT is trading at 1.10x P/B, slightly higher than the local retail subsector P/B of 1.05x. Our DDM-based fair value of S$0.99 implies a total expected return of 6.4%, including a FY14F DPU yield of 5.4%. As the counter appears to be fairly priced with no visible strong near-term price catalyst, we initiate coverage on SPH REIT with a HOLD rating.

Singapore-based retail landlord
SPH REIT is a Singapore-based REIT established principally to invest in a portfolio of income-producing real estate used primarily for retail purposes in Asia-Pacific. The initial portfolio comprises two commercial properties in Singapore, namely Paragon and The Clementi Mall, with a total NLA of 898,779 sqft and appraised value of S$3.1b as at 28 Feb 2013. The Sponsor is Singapore Press Holdings, the leading media organization in Southeast Asia with a market cap of S$6.8b.

Exposure to Singapore’s retail and healthcare services sector
Through the Paragon Mall, SPH REIT has the purest exposure to the upscale retail market in Orchard Road precinct than any Singapore-listed retail REIT. In addition to Paragon Mall, Paragon also houses Paragon Medical that hosts over 60 medical and dental specialist clinics and offices. Clementi Mall, on the other hand, is a mid-market suburban retail mall that is located in the heart of Clementi town with direct access to the bus interchange and MRT station.

Industry outlook looks rosy
We like SPH REIT’s unique exposure to the upscale retail market, suburban retail space and burgeoning healthcare services sector. In our opinion, the local retail landscape is expected to remain robust, bolstered by growing retail sales, rising visitor arrivals, an expanding population and comfortable supply of retail space. We also believe Clementi Mall’s strategic location and retail offerings will make it very resilient in nature. Furthermore, the underlying growth drivers for the regional healthcare scene are expected to remain strong.

Initiate with HOLD on valuation grounds
Since its listing, we note that SPH REIT has enjoyed a strong run-up in unit price of 8.9%, significantly outperforming the FTSE ST REIT Index by 14.3ppt over the same period. At current price, SPH REIT is trading at 1.10x P/B, slightly higher than the local retail subsector P/B of 1.05x. Our DDM-based fair value of S$0.99 implies a total expected return of 6.4%, including a FY14F DPU yield of 5.4%. As the counter appears to be fairly priced with no visible strong near-term price catalyst, we initiate coverage on SPH REIT with a HOLD rating.

SPH Reit

Uobkayhian on 22 Jul 2013

Executive Summary
SPH REIT is a Singapore-based REIT with an initial portfolio of two retail  properties, Paragon, an upscale mall on Orchard Road, and Clementi Mall, a suburban mall in Clementi. SPH REIT’s mandate is to invest primarily in retail  properties in Asia Pacific.

Offering yields of 5.6-5.8%. SPH REIT offers distribution yields of 5.6% in  2H13 and 5.8% in 2014. This is at a 20-40bp premium to the yields for  CapitaMall Trust and Fraser Centrepoint Trust, and a 10-20bp premium to  the yields for the retail S-REIT sector. Excluding income support, the forecast  yield for 2HFY13 is 5.4% and 5.6% for FY14. 

Exposure to high-quality retail portfolio in Orchard and Clementi. The  initial portfolio consists of two high-quality retail assets, Paragon, an upscale  mall on Orchard Road and Clementi Mall, a suburban mall in Clementi. Paragon is a premier upscale retail mall and medical suite/office property located in the heart of Orchard Road. Clementi Mall is a mid-market suburban mall located in the centre of Clementi town, an established residential estate in the west of Singapore.

Strong sponsor in Singapore Press Holdings (SPH), Singapore’s leading media organisation with a market capitalisation of S$6.7b. SPH’s commitment to retain a high 70% stake in SPH REIT post-listing ensures that its interests are closely aligned with that of unitholders.

Income support for under-rented Clementi Mall. Clementi Mall’s rentals are under-rented with current rentals 13% below comparable malls, such as Tampines Mall and Junction 8. SPH REIT has secured income support at Clementi Mall of up to S$20m over five years to support Clementi Mall’s net property income (NPI) at S$31m per year.

Institutional tranche 42x subscribed. The institutional tranche was 42x subscribed ahead of the listing. Cornerstone investors including Great Eastern Life, Hong Leong Asset Management, Morgan Stanley Investment Management, Newton Investment Management and Norges Bank have committed to 10% of the units in issue. In addition, NTUC Co-operatives, under the National Trade Union Congress, has also committed to 5.4% of the total units in issue.

Low all-in financing cost of 2.35% for debt and a low initial gearing of 27% as SPH REIT has adopted a conservative capital structure. This gives SPH REIT a debt headroom of S$370m before reaching a gearing of 35% Long-term growth potential through acquisitions with a Right of First Refusal (ROFR) over the sponsor’s pipeline asset at Seletar Mall. Other longterm growth opportunities include decanting anchor tenant space at Paragon to introduce more fashion or high-end retail outlets.

Valuation range. SPH REIT offers a forward yield of 5.8% in 2014.  Comparable retail S-REITs, such as CapitaMall Trust and Frasers Centrepoint Trust, are trading at forward yields of 5.4% and 5.5% respectively. At 5.4% and 5.5% forward yields, SPH REIT would be trading at S$0.97 and S$0.95 respectively.