Australian mall recovery bolsters SPH Reit's H1

QUICKER recovery in its Australian malls has helped to boost SPH Reit's first-half performance, as the trust reported a distribution per unit (DPU) of 1.24 cents for its second quarter, culminating in a DPU of 2.44 cents for the first-half period.

This is an improvement from the 1.68 cents paid out a year ago.

For the six months ended Feb 28, 2021, SPH Reit's gross revenue increased 4.9 per cent on the year to S$140 million, bolstered by Westfield Marion Shopping Centre's first full half-year contribution, versus just three months of contribution a year ago.

However, gross revenue for the Singapore assets declined 6.7 per cent due to Covid-19 rental relief granted to eligible tenants.

The manager noted signs of recovery in tenant sales at its Singapore assets, namely Paragon, The Clementi Mall and The Rail Mall, following the phased lifting of safe-distancing measures, and driven by growing shoppers' confidence in making physical visits to the malls.

While the Singapore portfolio saw 0.4 per cent rent reversion in its first half, rent reversions at The Clementi mall was -7.8 per cent, which Susan Leng, chief executive of the manager, attributed to negative sentiment as tenants renewed their leases amid the Covid-19 outbreak.

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"Obviously, the renewal rates will not be at the current market rate. It's just not sustainable. So when we do our renewals, we also take into consideration how these tenants have been trading, and also the rent relief that we have been providing them in order to keep the business at least sustainable and viable for this period."

The manger declined to disclose the total amount of rental relief it has given to tenants, but said that the level of assistance to tenants this year has declined with the gradual recovery.

However, tenants at Paragon - especially those in fashion still suffering from a lack of tourists due to border closures - may still require rental relief this year, she said.

Local consumption has not been able to bridge the gap, she added, and the manager has also been constrained in doing more to attract more shoppers, as atrium events are still not allowed and there are density measures in place to guard against overcrowding in malls.

"We try to work with tenants to do more in-store promotions, so it's more targeted and you also control the footfall in terms of density," she said.

Meanwhile, Covid-19 incidents are low in South Australia and Wollongong (in New South Wales), where SPH Reit assets are located. Such incidents were also well managed, which boosted shoppers confidence. Tenant sales at both assets have been resilient and have been tracking the performances of prior years.

However, the leases for a quarter of its Australian assets by gross rental income will expire this fiscal year. Ms Leng said this is due to the leasing code there, which does not motivate tenants to renew their leases earlier; there is no penalty of rents doubling if they hold over their tenancy.

The manager is thus monitoring occupancy cost ratios and payment patterns of tenants at its Australian assets to assess the risk of the tenants not renewing.

Overall, the Reit's portfolio occupancy was still resilient at 98 per cent as at the end of February 2021.

The Reit manager retained distribution of 0.52 cent per unit last year, which it has been gradually paying out. Some 0.13 cent was included in the second-quarter DPU, and a remaining 0.26 cent will have to be paid out this fiscal year, assuming no change in unit base, as the Reit seeks to keep its distribution stable from quarter to quarter.

Units of the Reit added S$0.01 or 1.18 per cent to close at S$0.855.