Analysts from CGS-CIMB and DBS Group Research are mixed on SPH REIT’s 4Q2020 results released on the evening of Oct 6.

See: SPH REIT posts 4Q DPU of 0.54 cents, defers 0.52 cents DPU to FY2021

CGS-CIMB analysts Eing Kar Mei and Lock Mun Yee have maintained their "add" call on the counter with a lower target price of $1.07 from $1.10 previously.

“We reiterate ‘add’ on SPH REIT as it is trading at 0.9x price-to-book value (P/BV) which may have priced in potential income downside. Upside/down risks include worse/better-than-expected impact from Covid-19,” they write in an Oct 7 report.

DBS analyst Derek Tan and the Singapore research team, on the other hand, maintained their “hold” recommendation with an unchanged target price of 80 cents.

For the 4Q2020 ended August, SPH REIT reported distribution per unit (DPU) of 0.54 cents. Full-year DPU for FY2020 stood at 2.72 cents, which came in below the expectations of both brokerages.

For CGS-CIMB’s Eing and Lock, SPH REIT’s FY2020 came in at 87.3% of their full-year forecasts. DBS’s Tan says the REIT’s DPU missed his full-year estimate of 4.31 cents on a lower 79% payout ratio for FY2020.

SPH REIT reported 5.6% y-o-y growth in its FY2020 revenue to $241.5 million, as well as a 1.2% y-o-y increase in its net property income (NPI) to $181.9 million mainly due to its acquisitions in Australia.

“The Australia malls fared better than the Singapore malls as the malls were not subject to a full lockdown, with tenant sales declining 1-9% and traffic falling 0-11% y-o-y in FY2020. SPH REIT has 25% of leases up for renewal in FY21. Leasing activities so far have been slow due to the uncertainties caused by Covid-19,” say Eing and Lock.

SPH REIT will be deferring some $14.5 million of capital allowances to FY2021 for near-term capital flexibility, which is in line with the 90% distribution policy based on guidelines set out by the Monetary Authority of Singapore (MAS).

The way Tan sees it, SPH REIT is prioritising the building up of its cash reserves. Apart from the $14.5 million withheld, the REIT will also be retaining $15 million in capital allowances for working capital needs, which brings its total buffer to $29.5 million.

“Priority has been given to build up internal cash reserves, which may mean that future distribution ratio will range between 90% to 100% as opposed to the historical 100%,” he says.

Following the deferment, Eing and Lock have raised their FY2021F DPU by 6.3% factoring the payment of the income withheld in FY2020. They have, however, reduced FY2022F DPU by 3% as they “lower our dividend payout ratio assumption from 100% to 97% to reflect the REIT’s intention to retain some overseas income to build up its cash reserve”.

For Tan, he thinks that SPH REIT will “likely even out distributions in the coming few years, by adjusting the payout ratio”.

“We have adjusted the payout ratio to 80% in FY21 and 90% thereafter from the historical 100% in view of the REIT’s cash conservation mode. Target price remains unchanged at $0.80 as we roll forward valuation base to FY21,” he adds.

As at 3.55pm, units in SPH REIT are trading 1 cent lower, or 1.1% down, at 87.5 cents.