SINGAPORE (July 13): CIMB Research continues to rate SPH REIT at “hold” as it awaits share price catalysts, such as potential new acquisitions.
The research house has nonetheless raised its target price estimate to $1.04 from $1.01 previously as a result of adjusting its assumed risk-free rate to 2.5% from 2.8%, in tandem with a flattening yield curve.
This comes after the trust on Wednesday posted a 3Q17 distribution per unit (DPU) of 1.37 cents, in line with CIMB’s expectations.
See: SPH REIT 3Q DPU up marginally to 1.37 cents
In a Thursday report, analysts Lock Mun Yee and Yeo Zhi Bin highlight SPH REIT as one of the lowest-geared Singapore REITs (S-REITs) and say they believe it will continue to enjoy “modest but positive uplifts” for their expiries, with 20.9% and 20.8% of its net lettable area (NLA) to be renewed in FY18 and FY19, respectively.
“With one of the lowest gearing levels amongst S-REITs of 25.6% as at 3QFY17, we believe the trust is well placed to tap acquisition growth opportunities in the medium term,” state the analysts.
Lock and Yeo also estimate that SPH REIT’s recent completion of Clementi Mall’s second rental renewal cycle will add another $0.8 million of rental income annual – as some 80% of the mall’s NLA has been re-contracted at 3.7% higher rents and a retention rate of 89%.
Some of the mall’s new offerings include Royal Sporting House, Owndays and llaollao, while its level 4 and basement spaces were also reconfigured to create additional lettable area, they note.
Further, the analysts expect the trust to continue enjoying positive rental reversions with a 100% portfolio committed occupancy as well as largely stable shopper footfall across both the Clementi Mall and Paragon properties.
“Upside risks include new acquisitions and better-than-expected rental growth, while downside risks include slow tenant take-up on renewals,” caution Lock and Yeo.
As at 10.25, units of SPH REIT are trading flat at $1.
