SPH REIT's net property income edged up 1.9% to $42.2m

But renewal rentals will be under pressure despite full mall occupancy.

SPH REIT reported 1.7% and 1.9% y-o-y increase in revenue and net property income to S$53.5m and S$42.2m respectively.

According to DBS, distributable income increased slightly by 0.5% to S$36.5m y-o-y, out of which 94.1% was paid out this quarter which translated to DPU of 1.34 Scts, flat y-o-y, and represents 24.1% of our FY17 forecast of 5.55 Scts.

Both Paragon and Clementi malls continued their track record of fully committed occupancy. However, as anticipated from last quarter, renewal rentals are under pressure on the back of tepid retail spending over the last three years.

Here's more from DBS:

Paragon recorded a rental reversion of -10.6% for the 4.4% of NLA renewed and newly signed, most of the leases were committed about a year ago.

The tenancy came from discretionary spending, primarily in high-end fashion. Clementi Mall also recorded a negative rental reversion but for a much smaller space that only represents 1.1% of the mall’s NLA, so the net impact is immaterial.

Tenant retention rate is stable around 80%. Another 18.0% of leases by gross rental income will be due to renew for the remaining nine months in FY2018.

The Manager acknowledged that they have been more flexible in their leasing strategy as the ongoing uncertainties in the retail sector are starting to bite. As such, they are focusing on helping the tenants to maintain their occupancy cost which is around 19.5% for Paragon and 15.5% for Clementi Mall.