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3 Things To Like About SPH REIT
Corporate Digest, Featured | 28 August 2014
Related stocks:
T39
By: Tan Jia Hui
Articles (82) Profile

SPH REIT might be a relatively new member to the family of more than 30 real estate investment trusts (REIT) listed in Singapore, but the two properties managed by the REIT, Clementi Mall and Paragon should not be unfamiliar to locals.

For people who have yet to take a closer look at SPH REIT, I would like to share three things to like about the REIT.

Low Gearing
Typically for REITS, money is raised from unit holders through an initial public offering as well as bank borrowings and used to purchase a pool of properties. In turn, the rental income generated by the properties is distributed back to unit holders.

As REITS have to distribute at least 90 percent of its income after tax, repayment of existing loans and the purchase of new properties would have to be financed through borrowings or allocation of extra units.

The gearing ratio of a REIT is typically a general indicator to investors about the current debt position of the REIT and a possible indicator of risks.

Investors should look for REITS with lower gearing as a higher gearing would actually mean that it is more vulnerable to a downturn as the REIT must continue to finance its debt regardless of how well the properties are doing in the downturn.

Source: Companies' Data as of 30 June 2014

Strong Performance In Current Portfolio
Even though SPH REIT has only two properties under its portfolio at the moment, it provides a good and unique mix of a prime retail mall (Paragon) and a suburban mall (Clementi Mall).

Conveniently located next to the train station and housing a bus terminal within, Clementi Mall enjoys high footfall throughout the week. It is able to draw people who are commuting home after work and also residents who leave nearby.

On weekends, the mall is a popular destination for families as it houses a public library, supermarket, department store, food court as well as a good mix of retail and food and beverage selections.

Paragon Mall, is located along the prime retail stretch of Orchard Road and offers a different exposure. Spotting an all-glass facade with 136 metres of prime Orchard Road frontage, it is a property that visitors and shoppers will not fail to notice.

As marketed in its prospectus, Paragon is strategically located within the Mount Elizabeth medical cluster and hence benefits from regular visitation by local patients and medical tourists.

In addition, Paragon is directly exposed to the strong healthcare sector, hosting over 60 medical and dental specialist clinics and offices within Paragon Medical.

Source: SPH REIT IPO prospectus

Furthermore, Paragon boasts a strong track record of 100 percent occupancy rate since 2003 with stable annual rental growth in the past 10 years, even through the global financial crisis.

Favourable Prospective Acquisition: Seletar Mall
As its name suggests, Singapore Press Holdings (SPH) is the sponsor of SPH REIT and the trust is granted right of first refusal (ROFR) to acquire SPH’s completed income-producing real estate located in Asia Pacific which is used primarily for retail purposes.

One such property is Seletar Mall, a six-storey suburban lifestyle mall located in the Seng Kang estate, slated for completion by December 2014. In the area nearby, the only mall that is comparable in terms of size would be Compass Point.

Personally, I can see a strong potential in Seletar Mall as it is likely to benefit from the strong catchment of residents living close by which is expected to increase over the next few years as more residential projects are completed in the Seng Kang and Punggol area.

Artist’s Impression Of Seletar Mall

Thus far, five anchor tenants have been confirmed, which include NTUC Foodfare foodcourt, FairPrice Finest, Uniqlo, BHG department store and Shaw Theatres.

In particular, the eight-screen multiplex cinema with 800 seats housed within the mall would be the first cinema mall to be built in the Seng Kang area.

Currently, for residents living in the area, the nearest location that offers a cinema would actually be NEX in Serangoon. Thus, I see this as good plus point for attracting people to Seletar Mall.

Investment Merits

  • Good mix of both suburban retail and premier retail properties in its current portfolio.
  • Strong track record for Paragon and positive results from Clementi Mall. In particular, healthy rental reversions remain at Paragon, with well-staggered lease expiry.
  • Low gearing, no refinancing needed till 2016.
  • Potential in Seletar Mall in which it has ROFR.

Investment Risks

  • Softening in retail segment and tourists’ arrivals could affect returns of properties.
  • Competition for human traffics at the two properties.
  • ack of acquisition target apart from Seletar Mall.
  • Possibility that the properties might not be able to retain tenants.

SI Research Takeaway
Despite a softening in retail sales in the previous few quarters coupled with a fall in tourists’ arrivals, I am of the view that Clementi Mall and Paragon has the potential to continue to perform well.

In particular, Clementi Mall as a suburban mall should be less likely impacted by the fall in tourists’ arrivals as the main bulk of its crowd consists of locals living near the area.

With many choices of REITS available these days, investors are truly spoilt for choice, but an advice to all those out there would be to look beyond the current dividend yield and instead look at the performance and potential of the REIT’s portfolio.

Armed with a bachelor in mathematics, Jia Hui keeps close tabs on the oil & gas, and manufacturing sectors in Singapore.

Please click here for more information about this author.

SPH REIT  1.090 -- --   
Business: S'pore-based REIT with a portfolio of assets primarily for retail purposes in Asia-Pacific.

Insight: Apr-19, 1H19 gross revenue rose 4.5% to $111.9m du... Read More
Singapore Press Hldgs  2.110 +0.03 +1.44%   
Business: Co is S'pore's main newspaper & magazines publisher that also has investment in properties. [FY18 Turnover] Media (66.7%), property (24.7%), others (8.6%).

Insight: Apr-19, 1H19 operating revenue fell 3% to $477.6m ... Read More


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