SPH REIT 1H22 – More to come for Paragon Mall
- 1H22 distributable income rose 8.4% to S$82.6m; DPU (+9.8% y-o-y) at 2.68 Scts in line with full year estimates
- Singapore tenant sales rose 2% y-o-y led by Clementi Mall; Reversions continue to improve across the board
- The best is yet to come for Paragon mall with atrium sales and return of tourists in near grip
- Maintain HOLD; TP of S$0.964 tagged to Cuscaden cash offer
Results Summary
| Summary of results | 1H22 | 1H21 | % y-o-y | 2H21 | %h-o-h |
| Gross revenue (S$m) | 141.6 | 140.0 | 1% | 137.2 | 3% |
| NPI (S$m) | 105.3 | 104.9 | 0% | 97.8 | 8% |
| Distributable Income (S$m) | 82.6 | 76.2 | 8% | 81.6 | 1% |
| DPU (Scts) | 2.68 | 2.44 | 10% | 2.9 | -6% |
| Key Financial Metrics | 1H22 | 1H21 | % y-o-y | 2H21 | %h-o-h |
| Gearing | 30.1% | 30.4% | -1% | 30.3% | -1% |
| Average cost of debt | 1.66% | 1.84% | -0.2 ppt | 1.84% | -10% |
| ICR (x) | 2.6 | 5.4 | -2.8 | 2.9 | -0.3 |
| Key Operational Data | 1H22 | 1H21 | % y-o-y | 2H21 | %h-o-h |
| Portfolio occupancies | 98.4% | 98.0% | 0.4 ppt | 98.8% | -0.4 ppt |
| SG Rental reversions (%) | -6.4% | 0.4% | -6.8 ppt | -8.4% | 2 ppt |
| WALE (years, GRI) | 2.8 | 3.0 | -0.2 | 2.7 | 0.1 |
1H22 DPU in line with estimates albeit higher operating costs
- SPH REIT reported 1H22 gross revenue of S$141.6m (+1.2% y-o-y)
- NPI was flat at S$105.3m (+0.4% y-o-y), due to increases in electricity costs
- Distributable income rose 8.4% to S$82.6m
- DPU for the period rose by 9.8% y-o-y to 2.68 Scts
- Topline and DPU was in line with our full year estimates at S$285.1m and 5.33 Scts respectively.
- 1H22 payout ratio is at 91%
- Cost of debt remains low at 1.66% with a WADE of 2.6 years
- Gearing stood at 30.1% as at 28th February 2022
Operational metrices remain at inflexion point; First sign of higher utility costs
- Portfolio occupancy remained at a high of 98.4% with WALE at 2.8 years by GRI
- Singapore tenant sales rose 2% y-o-y in 1H22
- Tenant sales surged for the months of Dec’21 and Jan’22 with Dec’21 tenant sales surging beyond pre-COVID levels.
- Clementi Mall posted surprisingly strong tenant sales for the month of Dec’21 to Jan’22, with tenant sales for the period up 6% y-o-y.
- Westfield Marion tenant sales was largely stable until a resurgence in cases in Jan’22 when tenant sales declined 9% y-o-y.
- Figtree Grove saw an uplift in tenant sales coming out of New South Wales lock down, which only stabilised closer to Feb’22.
- Singapore saw an uptick in operating expenses with a c.30% increase in utilities, as opposed to 1.5% of GRI.
- Local utility rates are generally floating in nature, while other expenses such as cleaning & maintenance continue to be largely fixed in nature.
- On the other hand, higher utility costs in Australia is largely sheltered on fixed terms.
Improving reversions within Singapore; Soft recovery in valuation
- Reversions continue to be reflected as negative in Singapore, on the weighted average basis in comparison to leases committed three years ago.
- Signs of declining negative reversions generally points to higher signing rents on a q-o-q basis.
- Within Singapore, reversions narrowed to -6.4% (vs -8.0% in FY21)
- Paragon Mall came in at -7.3% (vs -8.3% in FY21), Clementi Mall came in at -4.0% (vs -8.7% in FY21), Rail Mall recorded positive reversions at +8.9%.
- Asset valuations clocked in soft recovery for the period, led by Paragon mall (+1.1% h-o-h) to S$2670m and Clementi Mall (+0.5% h-o-h) to S$594m
Return of leisure and medical tourists; Favourable catalysts for Paragon Mall as border reopen
- Paragon Mall saw some uptick in medical tourist, with borders reopened with Indonesia, a key market for medical tourists.
- Amongst trade sectors, watches & jewellery was amongst the best performers, while luxury products continue to feel the heat from the lack of tourists
- Tenants expanding their shop front for the period include Cortina (luxury watches) and Zegna (luxury fashion house).
- For this reporting period ending Feb’22, SPH REIT continue to see limited traction from tourists.
- The reopening of atrium sales, alongside reopening of borders, will be key catalysts for Paragon in the coming quarters as a key luxury mall along Orchard Road.