Contributions from newly acquired assets boost SPH Reit's DPU

Singapore

CONTRIBUTIONS from two new malls and positive rental reversions boosted the performance of retail landlord SPH Reit, which reported a 2.1 per cent year-on-year increase in distribution per unit (DPU) to 1.46 Singapore cents for the fourth quarter ended Aug 31, 2019.

Gross revenue for the quarter rose 10.2 per cent year on year to S$58.37 million on the back of contributions from The Rail Mall in Singapore and Figtree Grove Shopping Centre south of Sydney; the Singapore property was acquired in June 2018, and the Australian one, in December that year.

Meanwhile, net property income (NPI) was up 11.8 per cent at S$45.81 million. Income available for distribution clocked in at S$35.37 million, or 2.3 per cent higher than in the corresponding quarter a year ago.

The DPU will be paid to unitholders on Nov 20.

Aside from local shopping centres Paragon, The Clementi Mall and The Rail Mall, SPH Reit holds an 85 per cent stake in the Figtree Grove property.

In August, the Reit's manager announced that it was conducting due diligence on another potential acquisition.

Susan Leng, chief executive of SPH Reit's manager, said the Reit will continue to scour for acquisition opportunities both in Singapore and Australia. She emphasised that while the Reit will look for opportunities in Singapore, the asset would have to be yield-accretive or have the potential to become so. "(Australia) is a country we continue to pursue," she added.

For the full year ended Aug 31, 2019, gross revenue rose 7.9 per cent to S$228.64 million, thanks to contributions from the two malls acquired last year. NPI worked out 8.3 per cent higher at S$179.78 million, and income available for distribution edged up 1.9 per cent to S$145.03 million. Full year DPU amounted to 5.6 cents, up 1.1 per cent.

In FY19, Paragon recorded a positive rental reversion of 9.7 per cent for new and renewed leases, which represented 26.6 per cent of total net lettable area (NLA). In FY18, for comparison, it had registered a negative rental reversion of 3.7 per cent for new and renewed leases.

Its location along the prime Orchard Road shopping belt put it in line to benefit from the growth in tourist arrivals; the mall's visitor traffic edged up 1 per cent to 19 million, the Reit reported. Tenant sales went up by 2.2 per cent to S$708 million.

Out in the suburbs, The Clementi Mall recorded positive rental reversions of 5 per cent, which represented 10.7 per cent of the total NLA. Visitorship was up by more than 5 per cent to 31.6 million; tenant sales rose 3 per cent to S$237 million.

In FY20, 61 per cent of the leases (by NLA) there will come up for renewal. Ms Leng said this would be an opportunity to better manage the asset.

The Reit also plans to progressively flatten out lease renewals to avoid lumpiness. This could entail offering some tenants a two-year lease term (with an option to renew), instead of the more typical three-year lease term.

The Rail Mall, a retail strip along Upper Bukit Timah Road, registered positive rental reversion of 9.4 per cent from lease renewals and new leases, which represented 23.5 per cent of total NLA. In this property, where 29 per cent of leases will come up for renewal in FY20, the Reit is keen to bring in good quality food-and-beverage (F&B) tenants to draw footfall.

The newly acquired Figtree Grove Shopping Centre, about 70km south of Sydney, recorded a negative rental reversion of 2.7 per cent, though annual tenants' sales were up 2 per cent at A$187 million.

The three assets in the Singapore portfolio maintained a high occupancy rate of 99.1 per cent, while Figtree Grove Shopping Centre chalked up an occupancy rate of 99.2 per cent.

As at end August, the Reit's total borrowings stood at about S$1.1 billion, with a gearing ratio of 27.5 per cent.

The three assets in the Singapore portfolio recorded a combined valuation of about S$3.4 billion as at the end of August, an increase of S$37.5 million from the year before.

At A$206 million, the valuation of Figtree Grove remained unchanged from the valuation at the point of acquisition.

Ms Leng said: "With the S$1 billion debt-issuance programme established in the year, it gives us greater flexibility to maintain an appropriate capital structure. As we move forward into FY20, we will continue to explore growth, both organic and inorganic."

SPH Reit's sponsor is Singapore Press Holdings (SPH), which publishes The Business Times.

The Reit's units closed at S$1.11 on Thursday, unchanged, before the results were announced.