Higher returns as SPH Reit beats forecasts

Singapore

SPH Reit has rewarded its unitholders with higher returns, thanks to steady and resilient operational performance.

The real estate investment trust yesterday posted a distribution per unit (DPU) of 1.35 cents for its third quarter ended May 31.

This was higher than the 1.31 cents it forecast in its prospectus when it was spun off from Singapore Press Holdings and listed in July last year.

It translates to an annualised distribution yield of 5.28 per cent, based on the Reit's closing price on May 31, 2014. The distribution will be paid to unitholders on Aug 14.

Net property income for the quarter came in 2.7 per cent higher than forecast at $37.7 million, on the back of lower operating expenses. "Continued savings in utilities attributed to higher efficiency in usage and more competitive utility rates," the Reit said.

It added: "Net property income of Paragon and The Clementi Mall exceeded forecast by 2.6 per cent and 1.3 per cent respectively, due to proactive management of expenses."

These are the only two assets in the Reit's portfolio, although a third, Seletar Mall, is slated for completion by year end.

Gross revenue was in line with its forecast at $50.4 million. The total amount distributable to unitholders was 3.6 per cent higher than forecast at $33.9 million.

Both Paragon and The Clementi Mall were fully leased. The renewal of all the leases expiring FY14 have also been completed ahead of time, the Reit said.

Year-to-date (from July 24, 2013 to May 31, 2014), it has declared a DPU of 4.6 cents, on the back of net property income of $127.9 million - both of which exceeded forecast.

Over this period, Paragon also enjoyed rental uplift of 11.5 per cent, while The Clementi Mall's average rental rates achieved for its 121 expiring leases was 5 per cent higher than the average rates of the preceding leases typically contracted three years ago.

SPH Reit has no refinancing requirement till 2016; its weighted average term to maturity is 4.3 years. Its gearing level stands at a healthy 26.9 per cent, with an average cost of debt of 2.33 per cent. Over half of its $850-million debt facility is on a fixed rate basis.

Susan Leng, CEO of the Reit manager, attributed the positive performance to "the strong positioning of both properties in our portfolio, proactive asset management and firm partnership with our tenants". The Reit, however, flagged the continuing manpower crunch as a factor likely to take a toll on retailers' expansion plans.

Retail sales (excluding cars) fell year-on-year in March and April, with the latter month registering a steep 16.3 per cent drop in sales of watches and jewellery. Economists suspect this might have to do with weakness in visitor arrivals this year.

Last week, CIMB initiated coverage on SPH Reit with a "buy" rating at a target price of $1.06, citing its unique combination of prime Orchard Road and stable suburban retail, as well as its exposure to Singapore's rising medical tourism. Besides a mall, Paragon also comprises a medical suite and office property.

Units of the Reit added half a cent to finish at $1.03 yesterday before its Q3 earnings were announced.