Is SPH REIT Worth Investing In?

Listed on 24 July 2013, SPH REIT owns and derives income from two retail malls namely Paragon and The Clementi Mall. Lately, it has acquired The Rail Mall, an established retail strip located along Upper Bukit Timah Road. Combined, it has portfolio of a net lettable area (NLA) of 961,523 sq. ft. of retail spaces worth S$ 3.368 billion as at 31 August 2018.

In this article, I’ll bring you an update on its latest financial results and its status on asset enhancement initiatives (AEI) works carried on its properties. Here are 8 things to know about SPH REIT before you invest.

#1: Paragon

Paragon is an upscale retail mall located along Orchard Road. In 2018, SPH REIT has introduced a new integrated ‘without inter-tenancy walls’ concept on Level 3 which creates a new shopping experience for shoppers and enables synergies via cross-marketing opportunities among its tenants. The phased opening of its 16,000 sq. ft. retail spaces at Level 3 is on track to be launched at end-2018.

In addition, SPH REIT has renovated and introduced Gucci duplex flagship store and has created an additional 7,000 sq. ft. of retail spaces via decanting of area which was previously occupied by Air Handling Units (AHU). In 2018, Paragon is 99.6% occupied with 321 tenants and had kept its net property income (NPI) at S$ 130 – S$ 135 million levels.

Source: SPH REIT’s Annual Reports

#2: The Clementi Mall

The Clementi Mall is a neighbouring mall linked to the Clementi MRT Station. In 2018, SPH REIT has focused on improving its signages, lighting and ambience of The Clementi Mall. It is now enjoying 100% occupancy rate with 156 tenants. In 2018, the neighbouring mall has kept its NPI at S$ 28 – S$ 30 million levels.

Source: SPH REIT’s Annual Reports

#3: The Rail Mall

On 28 June 2018, SPH REIT has completed its acquisition of the Rail Mall for S$ 65.9 million. It is a retail strip comprising of 43 Single-Storey shop units and 95 car parks totalling 50,000 sq. ft. of NLA located 250 metres away from Hillview MRT station. This property has a lease land balance of 28 years as it will expire in year 2036. Presently, it enjoys 94.8% occupancy rate with 26 tenants. It will start to contribute its first full financial year in 2019.

#4: Financial Results

Since its listing, SPH REIT has maintained its quarterly revenue of S$ 50 – S$ 55 million, quarterly distributable income of about S$ 35 million, and distribution per unit (DPU) of 1.35 – 1.40 cents per quarter. In 2018, SPH REIT has made S$ 211.8 million in revenue, distributable income of S$ 142.3 million and has paid out 5.54 cents in DPU, which are at similar levels to 2017.

Source: SPH REIT’s Quarterly Results

#5: Stock Price Performance

As a result, its stock price has mirrored its flat growth in revenue, distributable income, and DPU since its listing. SPH REIT’s stock price had maintained at S$ 1 per unit over the last 4 – 5 years.

Source: Google Finance

#6: Balance Sheet Strength

As at 31 August 2018, SPH REIT has reported total borrowings of S$ 895 million and thus, having a low gearing ratio of 26.3%. Its average cost of debt is 2.85% and its weighted average term to maturity is 2.3 years. This provides an ample amount of debt headroom to SPH REIT to fund any capital expenditures or any acquisitions of new investment properties in the future, if they arise.

#7: ROFR Properties

SPH REIT was granted Rights of First Refusal (ROFR) to acquire one property by its sponsor, Singapore Press Holdings Ltd. It is the Seletar Mall that was opened on 28 November 2014. Currently, SPH REIT revealed the mall has maintained a high occupancy rate.

#8: Valuation

As I write, SPH REIT is trading at S$ 1.01 an unit.

Gross Dividend Yield

Hence, its gross dividend yield is 5.49% based on its latest DPU of 5.54 cents in the last 12 months, close to its 5-Year Gross Dividend Yield Average of 5.41% a year.

Key Statistics (11 December 2018):

5-Year Gross Dividend Yield Range: 5.10% – 5.70%

5-Year Gross Dividend Yield Average: 5.41%

Current Gross Dividend Yield: 5.49%

P/B Ratio

As at 31 August 2018, SPH REIT has reported net asset value of S$ 0.95 an unit. So, its current P/B Ratio is 1.063, close to its 5-Year P/B Ratio Average of 1.056.

Key Statistics (11 December 2018):

5-Year P/B Ratio Range: 1.01 – 1.15

5-Year P/B Ratio Average: 1.06

Current P/B Ratio: 1.06

VIA’s Verdict

Since its listing, SPH REIT has delivered stable financial results and distributions per unit to its unitholders. It arises from stable performances from its two main properties namely, Paragon and the Clementi Mall during the 5-year period. An investment in SPH REIT has its pros and cons. They are:

Pros:

– Paragon, an asset located at a prime location as it is along Orchard Road.

– The Clementi Mall, enjoying full occupancy rate.

– Both properties are relatively new with lease period of more than 90 years.

– Low-Gearing Ratio: 26.3%, options to finance growth in the future.

– ROFR Properties: The Seletar Mall.

Cons:

– The Rail Mall has 28 years of remaining lease period.  

– Relatively Passive in Acquisitions to Grow its Portfolio.

– Sponsor is not a Property Development Company.

– Limited Growth Prospects due to limited land in Singapore to build new malls.

– Most major malls are owned by other S-REITs as stated below.

So, should we invest in SPH REIT?

I believe the answer lies in comparing SPH REIT with REITs which invest in retail malls in Singapore. They include:

– CapitaLand Mall Trust (CMT)

– Frasers Centrepoint Trust (FCT)

– Mapletree Commercial Trust (MCT)

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