Analysts are largely buoyant on SPH REIT’s prospects after the REIT posted results that point to the REIT’s recovery in the 1QFY2022 ended November.
SPH REIT did not declare any distributions during the quarter as it is bound by the Singapore takeover code on the back of the possible chain offer by Cuscaden.
CGS-CIMB Research analysts Eing Kar Mei and Lock Mun Yee have reiterated “add” with an unchanged target price of $1.03.
In their report dated Jan 7, Eing and Lock like that the REIT maintained its high portfolio occupancy rate of 98.8%.
The analysts are also positive on the REIT after tenant sales in Singapore stayed “relatively resilient” during the quarter despite the dine-in restriction of two pax for half of the 1QFY2022, compared to the maximum number of five people per group in the same period the year before.
“While Paragon’s tenant sales declined by 7% y-o-y in 1QFY2022, it quickly recovered to 70% of pre-Covid 19 levels in November 2021. As opposed to the performance of Paragon, tenant sales of Clementi Mall increased 5% y-o-y in 1QFY2022 and achieved 90% of pre-Covid 19 levels in November 2021, thanks to its position as a suburban mall, stronger tenant mix from new food and beverage (F&B) concepts and click-and-collect sports retailer Decathlon introduced last year,” note the analysts.
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“In Australia, Westfield Marion continued to demonstrate its dominance in Adelaide with tenant sales increasing 6% y-o-y and exceeding pre-Covid 19 levels in November 2021 due to its position as a super-regional shopping centre in Adelaide. While Figtree Grove’s tenant sales declined to 50% of pre-Covid 19 levels in September 2021 due to a 1.5-month lockdown, it quickly rebounded to 80-90% of pre-Covid 19 levels when the lockdown was lifted on Oct 11, 2021, demonstrating the resilience of the mall,” they add.
In FY2022, CGS-CIMB’s Eing and Lock expect rental pressures to ease amid fewer Covid-19 restrictions during the year.
The way they see it, Paragon will be a prime beneficiary on the opening of more vaccinated travel lanes (VTLs) as we progress into the latter part of 2022.
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“The REIT has one of the lowest gearing (30.3% as at 4QFY2021) among the Singapore REITs (S-REITs) which gives it ample firing power for acquisitions,” note the analysts.
“Upside and downside risks include accretive acquisition and more Covid-19 restriction measures [respectively],” they add.
Maybank Securities analyst Chua Su Tye has maintained his “hold” recommendation on SPH REIT with an unchanged target price of 95 cents.
To him, the REIT is likely to see an “improving performance” into the FY2022, with Paragon to gain from a recovery in Orchard Road rents from FY2022. Clementi Mall is likely to stay at a single-digit growth trajectory, writes Chua in a Jan 10 report.
In Singapore, easing measures should support the REIT’s recovery, although rental reversions are likely to remain soft, he adds.
In Australia, tenant sales had recovered to close to pre-Covid-19 levels as at November 2021. “We expect better fundamentals in FY22, backed by resilient occupancies,” says Chua.
The Maybank analyst adds that SPH REIT’s balance sheet remains conservative with an estimated gearing of 30% and a debt headroom of $1.1 billion at a limit of 45%.
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“Trading liquidity has improved following its FTSE EPRA NAREIT Global Developed Index inclusion, as daily traded volume averaged 4.6 million shares in 1QFY2022 (from 1.6 million in FY2021),” he says. “We think the sponsor’s Seletar Mall will likely be prioritised on acquisitions, and estimate that a fully-debt funded deal for the $480 million asset could add [some] 8% to our FY2022 estimates. However, we think inorganic growth could take a back-seat to potential restructuring of the sponsor.”
To Chua, risks for the REIT are “on the upside” given its acquisition catalyst although deal visibility “remains low as the sponsor’s restructuring is underway”.
On this, Chua has indicated his preference for Frasers Centrepoint Trust (FCT) for its “concentrated suburban mall portfolio”. Chua has given FCT a “buy” call with a target price of $2.90.
OCBC Investment Research analyst Chu Peng has also kept “hold” on SPH REIT albeit with a higher fair value estimate of 95 cents from 92 cents previously.
In her report on Jan 10, Chu notes that the REIT’s Australian portfolio performed better compared to its Singapore one on the whole due to its “strategic, suburban locations and tenant mix”.
“Westfield Marion continues to demonstrate its dominance in Adelaide, South Australia with tenants’ sales increasing 6% y-o-y, surpassing its pre-Covid-19 levels. While Figtree Grove was impacted by the lockdown for 1.5 months during 1QFY2022, its tenants’ sales had recovered to close to pre-Covid levels in November 2021 after the lockdown was lifted in October 2021,” she writes.
That said, Chu believes that rising vaccination rates and the launch of more VTLs should support the recovery of Paragon in Singapore. However, the daily quota for the VTL scheme remained “significantly lower as compared to [the REIT’s] pre-Covid-19 levels”, she notes.
“With the progressive reopening of the borders, we decrease our cost of equity (COE) assumption to 7.3%,” she adds.
Units in SPH REIT closed 1 cent higher or 1.04% up at 97.5 cents on Jan 12, or an FY2022 P/B of 1.0 times and a DPU yield of 5.6%, according to Maybank’s estimates.
Photo: Samuel Isaac Chua
