Paragon to remain SPH REIT's cash cow

A slight dip of 2.5% in shopper's traffic not a concern.

Full-year traffic declined mildly by 0.5m (2.5%) to 18.3m at Paragon in 2015, but investors should not worry as the property continues to be the one of the few malls of choice on Orchard Road due to its prestigious tenant mix, said DBS Vickers Securities.

SPH REIT's FY16 full-year Gross Revenue was up S$4.5m or 2.2% to S$209.6m, on the back of 2.5% and 0.8% revenue increases at Paragon and Clementi Mall, to S$170.3m and S$39.3m respectively.

Property expense of S$48.7m was S$0.8m or 1.6% lower than FY15, mainly due to savings in utilities, lower advertising and promotion and maintenance expenses.

DBS Vickers Securities noted that the reported expense included a property tax of S$0.8m relating to prior years, hence the net savings for FY16 could be higher.

Consequently, NPI of S$160.9m was S$5.3m or 3.4% higher than last year. Both Paragon and Clementi Mall performed better than last year, by S$4.7m (3.6%) and S$0.6m (2.3%) respectively. NPI margin improved to 76.8% from 75.9% with the margin for Paragon at 77.7% and Clementi at 72.8%.

Fullyear rental reversion of 5.4% was achieved at the portfolio level, with Paragon at 5.2% and Clementi at 7.8%. Occupancy cost was 19.6% for Paragon and 14.8% for Clementi Mall.

Full-year traffic declined mildly by 0.5m (2.5%) to 18.3m and 0.8m (2.4%) to 30.0m yo-y at Paragon and Clementi Mall respectively.

Despite a slight dip in shoppers’ traffic, DBS Vickers Securities noted that tenant sales were actually up by S$2.0m (0.3%) to S$661m.

More importantly, the new link bridge connecting Paragon to the Cairnhill redevelopment should draw more traffic to the mall going forward, it said.

The research firm added that the opening of the first Apple Store at Knightsbridge Mall next door may also be pulling over the desired shopper traffic for Paragon.

"Even though it is too early to conclude that the dip in visitor traffic is an early sign of deterioration, we remain cautious and will closely monitor the data over the next quarters," it said.