Seletar Mall buy could add up to 10% to SPH REIT's FY 2019 DPU

The firm’s DPU inched up 1.5% YoY to $0.0139 in Q3, thanks to higher contributions from The Rail Mall and Figtree Grove Shopping Centre.

Singapore Press Holdings Real Estate Investment Trust (SPH REIT) could see its distribution per unit (DPU) bolstered by between 7-10%, assuming a fully debt-funded deal for its acquisition of Seletar Mall, a report by Maybank Kim Eng (Maybank KE) revealed.

Also read: SPH REIT's acquisition of Seletar Mall could boost firm's DPU by 5% per annum

According to Maybank KE’s analyst Chua Su Tye, the proposed acquisition remains SPH REIT’s primary potential sponsored deal in Singapore.

The firm’s DPU inched up 1.5% YoY to $0.0139 in Q3 from $0.0137 in 2018. SPH REIT’s net property income (NPI) edged up 14.2% YoY to $46.33m in Q3 from $40.56m in 2018, whilst its gross revenue also jumped 12.7% YoY to $58.33m from $51.77m, thanks to higher contributions from The Rail Mall and Figtree Grove Shopping Centre.

Also read: SPH REIT's NPI up 14.2% to $46.32m

Chua also noted that SPH REIT’s DPU could also be supported by contributions from earlier deals and rental recovery at Paragon.

“Overall tenant sales growth was driven by a 4.4% YoY improvement in shopper traffic across its assets in Singapore in 9M 2019, up from 3.4% YoY in H1 2019. Portfolio rental reversion across its three Singapore malls was strong at 8.4%, led by Paragon at 8.6% with 81 leases contributing 21.4% of its net lettable area (NLA) renewed,” she said. “This supported a 2.6% YoY and 3.5% YoY growth in revenue and NPI. We forecast rents to rise by 3- 5% in FY 2019/2020 at Paragon given tight Orchard Road supply to support further positive rental reversions at Paragon.”

Meanwhile, a large amount of expiries in Clementi Mall in FY 2020 are expected, as noted by a report by CGS-CIMB. “The high lease expires in Clementi Mall of 71% is something to watch for as it contributed 18% to SPH REIT’s total NPI in 9M FY 2019,” CGS-CIMB analysts Eing Kar Mei and Lock Mun Yee said, adding that the high expiries would allow the REIT to reconfigure and possibly improve rental rates.

“Given the strong footfall in the mall and track record of a high tenant retention rate, the renewals should yield favourable results. In 9M FY 2019, visitor traffic for its Singapore assets grew by an encouraging 4.4% YoY whilst tenant sales were also higher,” they highlighted.