SPH REIT Analysis @ 7 October 2020

Update: 4 Nov 2020

SPH REIT releases FY20 annual report on 4th Nov 2020, Notable updates are weighted average land lease expiry = 91.7 years, Retail weightage = 87.6%, Healthcare weightage 12.4% and top 10 tenants contribution = 19.6%.

Basic Profile & Key Statistics

SPH REIT invests in retail properties in Singapore and Australia and currently owning 5 properties. Its flagship property - Paragon has healthcare exposure which leases to around 90 medical clinics.

FY20 Performance Review

August is the Fiscal year-end for SPH REIT. Both Revenue and NPI increased due to the acquisition of 50% interest in Westfield Marion in December 2019. Performance is hit by COVID-19 where its income available for distribution dropped 36.4% YoY. SPH REIT retains S$ 14.5 mils distribution, which is equivalent to 0.52 cents DPU. Without Retention, the FY DPU would be 3.24 cents, dropped 42.1% YoY.

Lease Profile

Occupancy remains healthy at 97.7%. WALE is short at 2.6 years with the highest lease expiry of 26% falls in FY23. Weighted land lease expiry is long at 90.34 years.

Debt Profile

Gearing ratio is low at 30.5%. Cost of debt is moderate at 2.7% with 100% secured debt. Fixed debt is low at 49.7%.  Interest cover ratio is high at 4.7 times. WADE is moderate at 2.9 years where the highest debt maturity of 30.8% falls in the year 2025.

Diversification Profile

Top geographical and top property contributions are high at 80.1% and 62.6% respectively. Most of its income is from Singapore properties. Top tenant and top 10 tenants contributions are low at 3.2% and 19.2% respectively. These figures are improved after the acquisition of 50% interest in Westfield Marion in December 2019, and should further improve upon its full-year contribution.

Key Financial Metrics

Property Yield is low at 4.8%. Management fees over distribution is high at 26.4%. Distribution on capital and distribution margin are low at 1.8% and 30.1% respectively.  Without distribution retention, the figures would be 22%, 2.2% and 36.2% respectively, still considered high for management fees and low for distribution on capital and distribution margin.

Trends

DPU, interest cover ratio and distribution margin are on a downtrend. Property yield is on a slight downtrend. NAV per unit maintains the same.

Relative Valuation

i) Average Dividend Yield  - Average yield at 5.02%, apply the past 4 quarters DPU of 2.72 cents will get S$ 0.54. Without distribution retention, DPU would be 3.24, which translates into S$ 0.645.

ii) Average Price/NAV - Average value at 1.05, apply the latest NAV of S$ 0.906 will get S$ 0.95.

Author's Opinion

Favorable	Less Favorable
High Committed Occupancy	Short WALE
Long Weighted Average Land Lease Expiry	100% Secured Debt
Low Gearing Ratio	High Top Geographical Contribution
High Interest Cover Ratio	High Top Property Contribution
Low Top Tenant & Top 10 Tenants Contributions	Low Property Yield
	High Management Fees
	Low Distribution on Capital
	Low Distribution Margin
	DPU Downtrend
	Interest Cover Ratio Downtrend
	Distribution Margin Downtrend

SPH REIT 2H result (from March to August) is greatly affected by COVID-19, especially during Singapore circuit breaker in April & May and Australia restrictions between mid March to early June. Nonetheless, the crowd is returning after phase 2 opening in Singapore, and with the phase 3 plan which is expected to be announced in the coming few weeks, the retail situation should be improved.

For more information, you could refer:

SREITs Dashboard - Detailed information on individual Singapore REIT

SREITs Data - Overview of Singapore REIT

REIT Analysis - List of previous REIT analysis posts

REIT-TIREMENT Patreon - Support this blog as a Patron and get SREITs Dashboard PDF

REIT Investing Community - Facebook Group where members share and discuss REIT topic

*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 advice or statement of fact. I shall not be held liable for errors, omissions as well as loss or damage as a result of the use of the material in this blog. Under no circumstances does the information presented on this blog represent a buy, sell, or hold recommendation on any security, please always do your own due diligence before any decision is made.