Australian mall recovery bolsters SPH Reit's H1

Singapore

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 Singapore cents for its second quarter, culminating in a DPU of 2.44 Singapore cents for the first-half period.

This is an improvement from the 1.68 Singapore 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 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 minus 7.8 per cent which Susan Leng, CEO of the manager, explained as negative sentiment as tenants renewed their leases in the midst of Covid-19.

"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 manager declined to disclose how much rental relief it has given to tenants in all, 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, which still suffer 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 said, 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 where SPH Reit assets are located. Such incidents were also well managed which boosted shoppers confidence. Tenant sales at both assets were resilient and tracked closely to prior years.

However, a quarter of its Australian assets by gross rental income will see their leases expiring this fiscal year, but Ms Leng explained that this is due to the leasing code there that does not motivate tenants to renew their leases earlier as 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 risks of the tenants not renewing.

Overall, the Reit's portfolio occupancy is still resilient at 98 per cent as at end-Feb 2021.

The Reit manager retained distribution of 0.52 Singapore cent per unit last year, which it has been gradually paying out. Some 0.13 Singapore cent was included in the second-quarter DPU, and a remaining 0.26 Singapore 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 S$0.855.