CGS-CIMB Research analysts Eing Kar Mei and Lock Mun Yee have kept “add” on SPH REIT as they see several positive re-rating factors going on for the REIT.
The REIT’s Paragon Shopping Centre is the largest listed mall along the Orchard shopping belt. The mall stands to be a beneficiary of the easing Covid-19 restrictions and the reopening of Singapore’s borders.
See also: Keppel REIT's potential acquisition of SPH REIT could be yield accretive: UOB KH
Paragon is SPH REIT’s largest asset by value, representing 64% of the REIT’s portfolio in FY2020. Some 20-30% of the mall’s tenant sales before Covid-19 were generated from tourist spending, note the analysts.
“We expect Paragon’s tenant sales to improve in tandem with the higher Covid-19 vaccination rate and easing restrictions,” they write in an Aug 26 report.
“Meanwhile, tenant sales of Clementi Mall, Westfield Marion and Figtree Grove have recovered near or to pre-Covid-19 levels. We expect these three malls to continue supporting SPH’s REIT income,” they add.
The asset enhancement initiatives (AEIs) planned for Westfield Marion and Figtree Grove in Australia, once completed, are expected to boost the assets’ rental income in the medium term.
SPH REIT’s potential inclusion into the FTSE EPRA Nareit Developed Asia Index in September is also expected to give the REIT’s share price a boost.
SPH REIT also has a strong balance sheet to support inorganic growth. The REIT currently has one of the lowest gearings among the S-REITs at 30.4% as at 1HFY2021.
“If the privatisation of SPH materialises, SPH REIT could tap on a larger acquisition pipeline of assets from Keppel Corp which now owns several retail assets in Singapore and overseas,” write the analysts.
“The REIT is also open to acquire alternative assets; this increases its acquisition opportunities and strengthens its inorganic growth potential. We believe medical suites could be an option,” they add.
SPH REIT is currently trading at a distribution per unit (DPU) yield of 6%, below its five-year mean of 5.3%.
Its peers’ DPU yields have generally recovered to their respective five-year means, note Eing and Lock.
On this, the analysts have lowered their DPU estimates for the FY2021-2023 by 0.6-2% to factor in the two weeks of mandated rental rebates and lower fees paid in units.
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They have, accordingly, lowered their target price on the REIT to $1.04 from $1.06 previously.
Units in SPH REIT closed 1 cent higher or 1.12% up at 90 cents on Aug 27, with an FY2021 P/B of 1 times and dividend yield of 6.27%, according to CGS-CIMB’s estimates.
