CFA Society Singapore
SINGAPORE (Jan 7): OCBC Investment Research and Maybank Kim Eng are maintaining their “hold” calls on SPH REIT with an unchanged fair value estimate and price target of 99 cents and $1.02, respectively.
This comes after the REIT’s 1Q19 earnings results came in line with both research houses’ estimates, with DPU coming in flat y-o-y at 1.34 cents due to the retention of a lower $1.3 million of taxable income available for distribution versus $2.2 million retained in 1Q18.
In a Monday report, OCBC analyst Andy Wong notes that the brightest spot for 1Q came from SPH REIT’s positive rental reversions mainly led by Paragon – which registered its first positive rental uplift since 9M17.
He is also positive on the REIT’s latest acquisition of Figtree Grove Shopping Centre (FGSC) in Australia, which marks the REIT’s first acquisition beyond Singapore and comes as “no surprise”, in his view.
Likewise, Maybank analyst Chua Su Tye says valuations have started to price in further inorganic growth opportunities post SPH REIT’s first overseas acquisition. The analyst however believes this will require time, given limited visibility of the trust’s impending Seletar Mall deal.
Nonetheless, he is expecting a recovery in prime Orchard Road rents, which is expected to come on the back of tight supply, to further support Paragon’s rental reversions going forward.
“[Paragon’s 1Q19 higher rental reversions were] likely driven by an uptick on tenant sales. We forecast rents to rise 3-5% in FY19-20E on the back of a cyclical retail recovery, and tight Orchard Road supply,” says Chua.
“We believe investors are awaiting more sizeable acquisition growth opportunities given an estimated$600-950 million in debt headroom. Meanwhile, Seletar Mall remains its key potential sponsored deal in Singapore, which could add 7-10% to FY19-20 DPU, assuming the purchase of a 100% interest fully debt-funded, given its low gearing vs. peers,” he adds.
As at 10.50am, units in SPH REIT are trading 2 cents higher at $1.03 or 1.12 times P/NAV based on OCBC estimates.