SPH REIT maintains decent gross revenue despite retail foot traffic decline

4Q gross revenue grew 2.2% to $52.2m.

SPH REIT’s 4Q16 performance was underpinned by higher revenue and better operating margins, said CIMB.

Its gross revenue rose 2.7% yoy to S$52.2m (US$38.4m), while income distributed rose 2.1% yoy to S$35.9m (US$26.4m) on improved operating performance and higher margins, thanks to cost savings.

According to CIMB, portfolio occupancy remained full and there was a positive rental reversion of 5.4% over preceeding levels across the portfolio, of which Paragon achieved 5.2% higher rentals on 34.2% of the space renewed in FY16.

The Clementi Mall renewed 11.9% of its space with a 7.8% improvement in rents over preceding levels. CIMB believes that this bodes well for the 46.7% and 59.5% of the NLA that are due to be re-contracted in FY17-18 at Paragon and Clementi Mall, respectively.

Occupancy costs, meanwhile, rose marginally.

Tenant sales at Paragon inched up by 0.3% yoy in FY16 despite a 2.5% yoy dip in shopper footfall, while The Clementi Mall saw a 1.4% yoy retreat in tenant sales with shopper traffic slowing by 2.4% yoy.

According to CIMB, spending per shopper headcount remained relatively steady yoy, demonstrating the resilience of these two properties. As a result, occupancy costs for Paragon and Clementi Mall inched up to 19.6% and 14.8% yoy, respectively.

Looking ahead, CIMB believes ongoing asset enhancement initiatives, such as decanting and conversion of 7000sf of back-of-house space at Paragon, and creating a more efficient layout at Clementi Mall, while also increasing the number of food kiosks there, should lift revenue marginally over the next two years.

It added that with a low gearing of 25.7%, the trust is well placed, to explore inorganic growth opportunities, such as potential acquisition of the Seletar Mall, which is majority owned by its Sponsor.