SPH REIT may spend up to $500m in acquisitions: report

The expected portfolio expansion may add 5-8% to its FY2020-21 DPU.

Singapore Press Holdings REIT (SPH REIT) may spend up to $500m in acquisitions with its $300m proceeds from perpetual securities and at the back of its strong portfolio performance, DBS Equity Research reported.

This is despite the DBS analyst Derek Tan’s generally cautious sentiment on the retail subsector, especially the Orchard Area. But DBS believes that the limited upcoming retail supply in Orchard would be to the REIT’s advantage.

SPH REIT’s Q4 DPU rose 2.1% YoY. In a report, Maybank Kim Eng expects contributions from earlier deals and rental recovery at Paragon to support DPUs.

DBS also noted Paragon the key growth driver for the REIT, with positive reversion of c.9.4% in FY2019 whilst its other Singapore malls recorded improving operational metrics. Tenant sales also reportedly remain healthy and are on an uptrend.

The REIT’s revenue and net property income (NPI) also climbed 10.2% YoY and 11.8% YoY in Q4, mainly due to acquisitions – Rail Mall and the 85% interest in Figtree Grove. Its portfolio occupancy remained stable at 99.1%, with almost all properties nearly full except for Rail Mall at 84.3%.

Also read: SPH REIT NPI up 8.3% to $179.8m in FY2019

With an increased $1.2b debt headroom, thanks to its improved aggregate leverage of 27.5% from 30.1%, the REIT has ample space for expansion in its portfolio. “Management is keen to expand in Australia, whilst Seletar Mall remains its primary potential sponsored deal in Singapore. This could add 5-8% to FY20-21 DPU, assuming a fully debt-funded deal,” said Maybank Kim Eng Research.

Similarly, DBS also noted its resilient portfolio, which “should be able to face challenges and stand the test of time."

“The REIT’s low gearing of 27.5% and potential deployment of proceeds into a new acquisition could drive DPUs higher,” DBS said.