Real estate investment trusts (REITs) are known for their income-producing ability. If the REIT can consistently increase its distribution per unit (DPU) year on year, income investors usually take bigger notice. Here’s one REIT — SPH REIT (SGX: SK6U) — that has managed to grow its DPU for the last couple of years.
Background of SPH REIT
SPH REIT is a retail REIT with four assets in Singapore and Australia. In our Lion city, it owns Paragon, The Clementi Mall, and The Rail Mall, collectively valued at S$3.4 billion, as of August 2018. Down under, it has an 85% stake in Figtree Grove Shopping Centre, a shopping mall in New South Wales. As of October 2018, the building was valued at 206.0 million Australian dollars.
Media giant Singapore Press Holdings Limited (SGX: T39) (SPH) is the sponsor and largest shareholder of SPH REIT. As of 10 October 2018, SPH owned slightly below 70% of SPH REIT.
Growing DPU since IPO
Originally under SPH, SPH REIT was spun off and listed on the Singapore stock exchange on 24 July 2013.
Since then, the REIT has been rewarding shareholders with growing DPU. In all, DPU has grown from 5.43 Singapore cents in FY2014 to 5.54 Singapore cents in FY2018 (SPH REIT has a 31 August year-end).Source: SPH REIT investor relations website
Even though the DPU rise has been small in terms of magnitude at 0.5% per year, it is still a consistent increase nonetheless. Some REITs are struggling to even achieve stable DPU.
SPH REIT’s DPU growth has continued into FY2019.
New acquisitions lifted SPH REIT’s latest DPU
DPU for the third quarter ended 31 May 2019 increased by 1.5% to 1.39 Singapore cents, up from 1.37 Singapore cents a year back. SPH REIT benefitted from the acquisitions of The Rail Mall and Figtree Grove Shopping Centre, causing its net property income to grow 14.2% year on year to S$46.3 million.
Year to date, DPU climbed 0.7% to 4.14 Singapore cents.
SPH REIT’s portfolio remains healthy. It maintained a high occupancy rate of 99%, and rental reversion was a positive 8.4% for the year-to-date period.
There’s a high chance of continuing DPU growth for the REIT. Susan Leng, chief executive of SPH REIT’s manager, said:
“The tourist arrivals and spend for 2018 ended on a positive note and we believe Paragon would stand to benefit with this trend. The Clementi Mall is well poised in the suburban to continue to serve its immediate catchment. The Rail Mall is a unique cluster of shop units, with opportunity for us to further strengthen its current F&B mix and create a differentiated positioning for the asset. Our focus remains to drive long-term value of our properties and deliver sustainable returns for our unitholders.”
SPH REIT has the leeway to acquire more to grow its DPU. It has the right of first refusal (ROFR) for The Seletar Mall, which started operations in November 2014 and has maintained a high occupancy rate since opening. If it makes financial sense for SPH REIT, it could buy The Seletar Mall from its sponsor, SPH. As of 31 May 2019, SPH REIT had a conservative leverage ratio of 30.1%, which gives it ample headroom to gear up for yield-accretive acquisitions.
At SPH REIT’s current unit price of S$1.07, it has a price-to-book (P/B) ratio of 1.1 and a distribution yield of 5.2%.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.
Motley Fool Singapore 2019