REIT-TIREMENT - REIT Investing and Personal Finance

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Saturday, July 04, 2020

SPH REIT Analysis @ 4 July 2020

Basic Profile & Key Statistics
Many investors think that SPH REIT is a pure retail REIT. Unknown to many, SPH REIT actually has healthcare exposure from its flagship property - Paragon which leases to around 90 medical clinics. SPH REIT has adopted half-yearly reporting but maintaining quarter dividend policy.

Lease Profile
Occupancy is high at 98.8%. WALE at 2.6 years is slight long as compared to other retail SREITS with Singapore properties. Weighted average land lease expiry by GRI is long at 90.59 years. Earliest land expiry is on 2026 March for Rail Mall, which only account for around 2% of its GRI.

Debt Profile
Gearing ratio at low 29.3%, which is 3rd lowest among SREITs. Cost of debt of 2.8% is slightly lower than SREITs median. As SPH REITs adopted half-yearly reporting, they did not disclosed their financial statement, thus couldn't check on its interest cover. Its interest cover for previous quarter is 5.73. WADE is short at 2 years where its debt maturity is well-spread. Its highest debt maturity is on FY 2023 which amount to 26%.

Diversification Profile
Top geographical and top property (Paragon) contribute around 85% and 67% based on past 1 year average. If we take into consideration of recent acquisition for Australia property, the figure would drop to around 77% and 61%, both figures are still high. Top tenant contribution of 3.2% is the lowest in SREITs. Top 10 tenants contribution at 19.2% is the 4th lowest in SREITs.

Key Financial Metrics
Again, as SPH REIT did not disclosed their financial statement this time, so we are unable access its latest quarter performance. These key financial metrics is calculated by annualized value of past 1 year. Property yield is low at 5.2%. Management fees of 16.9% translate into $5.90 dividend for every dollar paid. Distribution margin is slight low at 45.2%. Both high management fees and low distribution margin are due to management reserve cash for COVID situation. 

DPU & NAV Trend
DPU increased slowly for the past 5 years before COVID take place. For the past 2 quarters, management has decided to reserve cash for COVID situation. NAV is stagnant throughout past 5 years.

Fundamental Valuation
 Favorable Less Favorable 
 Occupancy WADE
 WALE Top Geographical
 Weighted Average Land Lease Expiry Top Property
 Gearing Property Yield
 Top Tenant & Top 10 Tenants 
 Well-Spread Debt Maturity 
Its first acquisition was The Rail Mall which completed in Jun 2018. Second acquisition was Figtree Grove Shopping Centre in Dec 2018. And third was Westfield Marion Shopping Centre which completed in Dec 2019. Look beyond COVID, I believe DPU would back to normal.

Relative Valuation
i) Average Dividend Yield
Average value at 5.18%, apply past 4 quarters DPU of 3.64 cents will get S$ 0.70. If we take the DPU without retention for COVID situation and assume past 2 quarters distribution are from distributable income ended at 28 Feb, then DPU would be 4.34 cents, which translate into S$ 0.84.
ii) Average Price/NAV 
Average value is at 1.05, apply latest NAV of S$ 0.95 will get S$ 0.995

Author's Opinion
Personally, I am getting more and more sick of the recent change of half-yearly reporting. With this new SGX rule, SREITs management can choose not to disclose full information to investors. Therefore, investors are unable to have a full picture of quarter performance. As for valuation:
i) Fundamental Intrinsic Value = (Removed)
ii) Relative Valuation - Dividend Yield = S$ 0.84
iii) Relative Valuation - Price/NAV = S$ 0.995
At current price of $0.875, it is consider undervalue in term of fundamental and relative valuation by Price/NAV.  

*Disclaimer: Materials in this blog are based on my research and opinion which I don't guarantee the accuracy, completeness and reliability. It should not be taken as financial advise or statement of fact. I shall not be held liable for errors, omissions as well as loss or damage as a result of use of material in this blog. Please always do you own due diligence before any decision is made.

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