Brokers’ take: Analysts positive on SPH Reit’s near-term prospects as tenant sales recover

CGS-CIMB and DBS Group Research have maintained their respective "hold" calls on SPH Reit while noting improved operating metrics and tenant sentiment as well as recovering portfolio reversions.

This comes after the real estate investment trust (Reit) reported a 2.2 per cent rise in distribution per unit (DPU) for the 12 months ended August 2022, boosted by increased footfall and subsequent tenant sales recovery at its Singapore assets.

In a report on Monday (Oct 10), analysts of CGS-CIMB highlighted an improvement in FY2022 portfolio reversions compared to the previous year despite remaining negative.

They think SPH Reit's portfolio could start showing positive reversions going forward, noting improved valuations for both its Singapore and Australian assets due to higher rental income and stable cap rates.

The Reit could also potentially improve asset efficiency under the direction of its new property-led sponsor Cuscaden Peak, they added.

CGS-CIMB has tweaked its FY2022 to FY2024 estimates for SPH Reit by 0.1 per cent to 33.7 per cent to factor in a change in financial year end as well as raised rental growth assumptions, resulting in a slightly higher price target of S$0.96 on the Reit compared to S$0.95 previously.

Meanwhile, DBS Group Research continues to like SPH Reit as one of the key beneficiaries of Singapore's reopening - particularly its anchor asset Paragon Mall, where tenant sales for FY2022 have reached about 89 per cent of 2019 levels.

Its analysts also believe there are "good reasons" to expect a festive boost to the Reit's operating metrics in the first quarter ending December 2022 alongside strong monthly traction of tourist arrivals to Singapore.

"Indonesian and Chinese spenders are the two titans when it comes to tourist spending at Paragon, making up about 16 per cent of mall footfall respectively. We expect developments on China's border reopening to be a key catalyst for the stock," they said.

The research house's price target on the Reit remains unchanged at S$0.96.

At its latest closing price of S$0.895 on Monday the counter trades at an "compelling yield" of 6.1 per cent on a forward basis and below book at 0.97 times price-to-book, noted its analysts.

They also like SPH Reit for its low gearing, resilient position in comparison to its peers, and "diminishing gap" on negative reversions based on the Reit's latest set of full-year results.

"SPH Reit stands as one of the lowest geared within the S-Reits sector with an aggregate leverage of 30 per cent (as at end-August). With an estimated 70 per cent of borrowings on fixed interest rate, a 10 basis points increase in interest rate (assuming 100 per cent floating debt) will translate to a 0.5 per cent impact on DPU," said the analysts.

Units of SPH Reit were trading unchanged at S$0.895 as at 11.40am on Tuesday. 

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