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Analysts reduce SPH REIT’s DPU forecast on lower shopper traffic and weaker rental reversion

Felicia Tan
Felicia Tan • 3 min read
Analysts reduce SPH REIT’s DPU forecast on lower shopper traffic and weaker rental reversion
Analysts may be mixed on the REIT, but they have all cut their DPU estimates for FY20.
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SINGAPORE (July 6): Following SPH REIT’s business update for 3Q on Wednesday, CGS-CIMB analysts Eing Kar Mei and Lock Mun Yee have cut their forecasts for its FY20-22F DPU by 3-29%.

See: SPH REIT reports 3Q DPU of 0.5 cent in business update

Eing and Lock have also reduced SPH REIT’s target price to $1.10 from $1.13, previously.

The reduced DPU reflects an additional 0.3-month rental waiver for FY20F, lower dividend payout, and weaker rental reversion, say the analysts.

However, the analysts say they continue to “like” SPH REIT’s niche and quality assets. They also believe the REIT has retained some income for further rental assistance in addition to the mandatory rental waiver imposed by the government.

Despite the circuit breaker measures imposed, which has led to reduced customer traffic across all retail malls, SPH REIT managed to retain a high occupancy rate of 98.8% in 3Q20.

As such, Eing and Lock have maintained their “add” call for the REIT.

“In Singapore, Paragon has only 1% of lease (down from 3% last quarter) by GRI due to be renewed in FY20 while Clementi’s leases due in FY20 have all been renewed, thanks to its advance negotiation policy… As at FY19, Clementi had 55% of leases due in FY20. The fast renewal rate is a testament of the quality of Clementi mall,” they say.

“In Australia, the REIT renewed some leases with Figtree Grove’s expiring leases declining from 13% to 8% by GRI and Marion’s from 30% to 28%,” they add.

However, Eing and Lock believe the REIT may not be as able to secure renewals in FY21F as easily given the current environment.

Maybank Kim Eng analyst Chua Su Tye has also revised FY20F’s DPU to -15% for the REIT due to the additional tenant support measures.

Chua believes shopper traffic recovery and tenant sales are likely to be slow for SPH REIT’s luxury mall, Paragon.

He has maintained his “hold” call and an unchanged target price of 80 cents for the REIT.

“Its balance sheet remains sound, although we see low near-term deal catalysts, as tenant retention gets prioritised,” he says.

“We expect its leverage would have likely stayed at around 30%; it was 29.3% as of end-Feb 2020 following the completion of its Adelaide deal, with an estimated $1.1 billion in debt headroom (at 45% limit). We believe that deal opportunities are unlikely to arise in the near term, as management focuses on tenant retention across its properties,” Chua adds.

OCBC Research analyst Chu Peng has also cut her DPU projections for SPH REIT by 6% and 2% for FY20 and FY21 respectively on higher rental rebates and weaker rental reversions.

“While we see the reopening of retail shops in Phase 2 as a positive to tenants, the impact of social distancing, change of consumption pattern to e-commerce, and risks of second wave of Covid-19 infections could weigh the recovery trajectory,” she says.

Chu has maintained her "hold" call on the REIT with an increased target price of 81 cents from 77 cents previously.

As at 12.53pm, units in SPH REIT are changing hands flat at 87.5 cents.

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