SINGAPORE (Oct 14): SPH REIT saw its earnings for the FY19 ended August boosted by its two acquisitions in FY18 – The Rail Mall and Figtree Grove Shopping Centre. But analysts say this might not be enough for the REIT to earn a re-rating.

Following the release of its FY19 results on Oct 10, analysts from three brokerages – Maybank Kim Eng Research, OCBC Investment Research, and CGS-CIMB Research – are all keeping their “hold” recommendations on SPH REIT.

See: SPH REIT posts 2.1% increase in 4Q DPU to 1.46 cents

Out of seven research houses covering the counter, five have “hold” calls, while one has a “buy” call and the last has a “sell” recommendation.

SPH REIT delivered a distribution per unit (DPU) of 1.46 cents for 4Q19, some 2.1% higher than DPU of 1.43 cents a year ago. This brought full-year DPU for FY19 to 5.60 cents, some 1.1% higher than DPU of 5.54 cents in FY18.

“The increase was mainly contributed by the acquisitions of The Rail Mall and Figtree Grove Shopping Centre which were acquired in 2018,” says OCBC analyst Chu Peng, adding that the 4Q19 results were within expectations.

OCBC is maintaining its “hold” call, while putting its fair value estimate of $1.05 under review.

See: SPH REIT acquires 85% stake in Australian shopping centre for $175.1 mil

Looking ahead, Maybank analyst Chua Su Tye believes contributions from earlier deals and rental recovery at Paragon should support DPUs.

However, Chua opines that SPH REIT is “in need of a sizeable deal”.

The analyst notes that SPH REIT’s aggregate leverage has improved from 30.1% to 27.5% as of end-August, following its $300.0 million perpetual securities issuance at 4.1%.

“Investors are now awaiting more sizeable growth opportunities with its increased $1.2 billion debt headroom,” says Chua.

Following its acquisition of Figtree Grove Shopping Centre in Australia – SPH REIT’s first overseas acquisition, Chua says the REIT’s assets under management (AUM) has increased 6.8% y-o-y.

However, he notes that this trails the growth of its peers.

CapitaLand Mall Trust (CMT), for instance, has seen its AUM grow 12% y-o-y over the past 12 months, while Frasers Centrepoint Trust (FCT) has seen its AUM climb 16% y-o-y in the same period, Chua says.

Maybank is keeping its “hold” call and increasing its target price by 4.8% to $1.10.

Analysts at CGS-CIMB Research agree that SPH REIT’s stronger FY19 results have been mainly driven by acquisitions, and that the REIT is needs more acquisitions to give it another shot in the arm.

“The acquisition of accretive assets is a potential rerating catalyst,” says lead analyst Eing Kar Mei in an Oct 11 report.

“With perpetual securities, SPH REIT could fund two acquisitions comfortably,” she adds.

CGS-CIMB is keeping its “hold” call on SPH REIT with a slightly lower target price of $1.09, down from $1.11 previously.

“We like the niche position of its malls, but it lacks major re-rating catalysts for now,” Eing says.

As at 4.14pm, units in SPH REIT are trading 1 cent higher at $1.14. The counter is trading at its highest-ever level since its initial public offering (IPO) at 90 cents in July 2013.

According to CGS-CIMB valuations, SPH REIT is trading at a price-to-book value (P/BV) of 1.0 times and a dividend yield of 5.1% for FY20F.