SPH REIT kept at 'hold' amid first overseas foray

SINGAPORE (Dec 19): Maybank Kim Eng Research is keeping its “hold” call on SPH REIT with a marginally higher target price of $1.02, raised from $1.00 previously, even as the REIT makes its first overseas foray.

SPH REIT on Tuesday announced it is acquiring an 85% stake in Australian property Figtree Grove Shopping Centre for A$175.1 million ($175.1 million), or A$188.2 million after including fees.

See: SPH REIT acquires 85% stake in Australian shopping centre for $175.1 mil

“We see this as sound diversification, with the property’s tenancies supported by its non-discretionary retail focus and long WALE. While it will just add 1-2% to DPUs, expectations of further inorganic growth opportunities have been raised,” says analyst Chua Su Tye in a Wednesday report.

To be fully debt-funded, Figtree Grove Shopping Centre will make up 5.2% of SPH REIT’s assets under management (AUM). Post-transaction, SPH REIT’s gearing will rise to around 30.1%, leaving around $600-950 million in debt headroom.

According to Maybank, the transaction is expected to achieve a net property income (NPI) yield of 6.0%, or 5.7% after accounting for costs.

“We see this as another sound initiative following its recent Rail Mall deal, given the property’s focus on non-discretionary retailing, high 98.5% occupancy, long WALE of 5.4 years by income and 7.8 years by GLA, and well-staggered lease expiries,” says Chua.

“That said, investors will need patience, given the limited visibility of its long-discussed potential Seletar Mall deal,” the analyst adds.

As at 3.36pm, units in SPH REIT are trading 1 cent down at $1.00, implying an estimated DPU yield of 5.5% for FY19.