SINGAPORE (Oct 7): DBS Vickers Securities is keeping its “hold” call on SPH REIT at a slightly higher price target of $1 from 99 cents previously as the research house believes the stock is fairly priced, despite a more bullish view on rents at selected malls in Orchard Road.   

In a Thursday report, analyst Derek Tan explains that although SPH REIT’s dividend yield of 5.7% reflects its strength in assets and stable earnings, he thinks comparable retail Singapore REITs are offering even more attractive yields.

Nevertheless, the REIT’s gearing of 25.7% and cost of debt of 2.82% leads Tan to conclude it is “well poised for debt-funded acquisitions”.

“The next growth catalyst for the REIT will be the acquisition of the sponsor’s (i.e. Singapore Press Holdings) 70% stake in Seletar Mall. However, we believe this acquisition is likely to be more of a medium term-prospect, as the mall was only completed in December 2014 and is still on its first lease cycle,” elaborates the analyst.  

Among the properties under SPH REIT’s portfolio, it is in Tan’s opinion that Paragon will continue to drive the REIT’s earnings growth by continuing to outperform the other malls along Orchard Road, due to its prime location as well as proximity to the Mount Elizabeth medical cluster.

“Paragon continues to be the one of the few malls of choice on Orchard Road due to its prestigious tenant mix. The opening of the first Apple Store at Knightsbridge Mall next door may also be pulling over the desired shopper traffic for Paragon,” he observes.

“A linkbridge connecting Cairnhill redevelopment and Paragon, to be opened in Nov/Dec 2016, may draw new traffic to the mall.”  

Tan also reckons Clementi Mall, with more than 50% lease expirations due in FY17, could set a new base for rent.

The mall is also a main contributor towards the short weighted average lease expiry (WALE) of SPH REIT’s portfolio – of which 18.5% of its net lettable area (NLA), equivalent to about 166,000 sf, will expire next year.  

“Maintaining the occupancy level and rental income is crucial as they will set a base for the REIT’s future DPU growth once the income support at Clementi Mall ends in 2018,” he cautions.  

As at 3:30pm, units of SPH REIT are trading flat at $1.