SPH REIT rises despite analysts’ so-so-take on results

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SPH REIT was up 1.02 percent at S$0.995 at 12:58 P.M. SGT, outperforming an around 0.19 percent rise in the Straits Times Index, despite reporting results that generally failed to excite analysts much.

On Thursday after the market close, SPH REIT said its net property income for the fiscal fourth quarter fell 1.9 percent on-year to S$40.98 million, as lower revenue from the Paragon mall was partially offset by a higher contribution from The Clementi Mall and two months of contributions from The Rail Mall.

CGS-CIMB said in a note on Friday that the results were in line with its expectations, with the distribution at 99.5 percent of its full-year forecast.

It said the REIT was “improving gradually,” with improved retail sales sentiment expected to help rental reversions in the coming year, but it added that it was sticking with a Hold call. It trimmed its target price to S$1.03 to S$1.07.

“We like the niche position of its malls but it lacks major rerating catalysts. Accretive acquisitions could serve as a share price catalyst while
slower-than-expected rental reversion from Paragon could be a downside risk,” CGS-CIMB said.

Maybank KimEng was similarly unenthused, calling the REIT a “waiting game,” as expectations it would acquire Seletar Mall still hasn’t happened. It noted the earnings were in line with expectations.

“It remains a strong proxy to growth in tourism spending and recovery in prime Orchard Road rents. Its Rail Mall deal is a sound step to
alleviate e-commerce risks, but unlikely to change its overall distribution per unit growth profile,” the note on Friday said. It added, however, that with The Rail Mall’s occupancy at a high 96 percent and with low footfall, near-term organic growth was likely capped.

“Investors will require patience, given limited visibility on its long-discussed potential Seletar Mall deal; we see these as priced in and the shares as fairly valued at this level,” Maybank KimEng said, keeping a Hold call with S$1.00 target price.

Some analysts were more upbeat.

On the upside

Nomura was positive on the results, which met its expectations.

“The latest operating numbers from Paragon and Clementi (in terms of tenant sales and shopper traffic) appear fairly robust and lend support to the view that the performance at these malls has likely turned the corner,” Nomura said in a note on Thursday.

It added that it expected the Rail Mail, which was acquired in late June, should contribute more meaningfully to earnings in the current fiscal year. With leverage still low after that acquisition, the REIT still had headroom to buy more assets, it said.

It kept a Buy call with S$1.16 target price.


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