See: SPH REIT posts 0.7% rise in 4Q17 DPU to 1.42 cents
In a Wednesday report, analyst Derek Tan says, “We upgraded the REIT in March 2017 on the back of potential acquisition of The Seletar Mall.”
See: SPH REIT upgraded to ‘buy’ on potential mall acquisition
Since then, SPH REIT's unit price has risen on heightened market expectation of the acquisition after the mall's first rental renewal cycle was completed.
“We have pushed the timing of the acquisition of The Seletar Mall to the end of FY18F, i.e. Sep/Oct 2018, whereas the market has priced in an earlier acquisition. As a result, our FY18F DPU forecast is 8% lower than the consensus average,” says Tan.
According to Tan, with Seletar Mall, the REIT will be able to derive a higher proportion of its income from suburban shopping malls.
Meanwhile, DBS says SPH REIT’s unit price and Singapore retail sales are strongly correlated.
“We believe the rental performance of the two properties – Paragon and Clementi Mall – in the portfolio, predominantly the former, is a good representation of investor’s perception and confidence in the direction of the Singapore retail market,” says Tan.
In turn, Singapore's retail sales and SPH REIT’s rental reversion rates are strongly correlated, given the greater willingness for merchants to renew their tenancies at a higher rents once they observe positive retail momentum in the previous rental cycle.
As at 11.29am, units in SPH REIT are trading at $1.04 or 20.7 times 2018 earnings with a distribution yield of 5.3%.
