Analysts from CGS-CIMB Research and Maybank Kim Eng are mixed on SPH REIT upon the release of its results for the 3QFY2021 ended June.
On July 12, the REIT reported distribution per unit (DPU) of 1.38 cents for the quarter, 11.3% higher q-o-q, due to retained income from the 1HFY2021.
On this, CGS-CIMB analysts Eing Kar Mei and Lock Mun Yee have maintained “add” on the REIT with an unchanged target price of $1.06 as they see “brighter prospects” ahead.
SPH REIT’s 9MFY2021 revenue, which rose by 22.2% y-o-y to $209.6 million, stood at 74% of the analysts’ full-year forecast.
The REIT’s 9MFY2021 DPU of 3.82 cents came in at 67% of the analysts’ full-year forecast.
During its business update, the REIT reported stabilised footfall and tenant sales across its malls, while occupancy remained high at 98.4%.
To Eing and Lock, the REIT’s occupancy for Paragon is “likely to stay high” due to its strategic location in Orchard Road despite exiting retailers.
“Overall, management sounded more optimistic during the briefing compared to last quarter,” note the analysts.
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The REIT’s manager also expects the relaxed measures, which now allows five people per group to dine-in from July 12, and the potential increase in limit to eight people per group, to help improve footfall in Singapore.
“While Paragon’s tenant sales would remain affected by border closure, it has a unique positioning for luxury brands. Metro, a key tenant at Paragon has renewed its lease. Asset enhance initiatives (AEIs)
for its Australian assets are on the cards,” note Eing and Lock.
“On acquisition, the REITs would also consider other asset classes other than retail assets,” they add.
The analysts say they see rental pressure easing due to the “relatively stable” tenant sales and positive vaccine development.
To them, the counter is currently trading at an attractive 6% yield.
Maybank Kim Eng analyst Chua Su Tye, on the other hand, is reiterating his “hold” call with the same target price of 80 cents on the REIT, as he sees its recovery as “slow”.
“Paragon, at 56% of revenue and 64% of [the REIT’s] assets under management (AUM), remains weak, with negative rental reversions to persist, given slow tenant sales and absent tourism spend,” says Chua.
That said, SPH REIT’s numbers for the 3QFY2021 and 9MFY2021 stood in line with his expectations.
To this end, Chua has also kept his earnings forecasts.
However, he indicates that Frasers Centrepoint Trust (FCT) is his preferred pick for its “concentrated suburban mall portfolio”.
SPH REIT’s balance sheet remains conservative with low gearing at 30.4%.
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As the REIT’s manager is not in a hurry to make any acquisitions overseas and that the sponsor’s Seletar Mall is likely to be prioritised, Chua sees that a fully-debt funded deal for the $480 million asset could add 8% to his FY2022 estimates.
To Chua, an earlier-than-expected pick-up in leasing demand for retail and office space driving improvement in occupancy, higher-than-expected rental reversions and accretive acquisitions could prove to be re-rating catalysts for the counter.
That said, a prolonged slowdown in economic activity, termination of long-term leases and sharper-than-expected rise in interest rates are downsides for the REIT.
As at 10.09am, units in SPH REIT are trading 0.5 cent higher or 0.5% up at 95 cents.
Photo: Samuel Isaac Chua / The Edge Singapore
