3QFY14 results within view

SPH REIT reported its 3QFY14 results last Fri, with NPI up 2.4% YoY
to S$37.7m. The better performance was driven by a 2.1% growth in
gross revenue at Paragon, and lower utilities and marketing expenses
within the portfolio. Distributable income also rose by 2.4% to
S$33.9m. As a result, DPU registered 1.35 S cents for the quarter
(+2.7%). Coupled with 1H distribution, 9MFY14 DPU totaled 4.60 S
cents. This exceeded its prospectus forecast of 4.46 S cents by 3.1%,
but came in largely within our expectations (forming 76.0% of our
full-year DPU projection).
Portfolio sturdy as ever
We understand that both Paragon and The Clementi Mall remained
fully leased. For the 365,913 sqft NLA (40.6% of portfolio NLA) of
leases expiring in the 9M period, an average positive rental reversion
of 8.4% was achieved (Paragon: 11.5%; Clementi Mall: 5.1%). This
was a tad lower than the 10.8% rental uplift saw in 1H, but still very
healthy in our view. Management disclosed that shopper traffic has
held steady YoY, and that Clementi Mall has added several new
tenants including Coffee Kaki, Rubi Shoes and Ogawa. Going forward,
however, SPH REIT reiterated that the continuing manpower crunch is
expected to weigh on the growth in some labour-intensive sectors and
take a toll on expansion plans of retailers. Nevertheless, it expects its
portfolio to continue to turn in steady performance, as it continually
optimizes the tenant mix of its malls.
Retain HOLD on valuation grounds
Management also shared that it has identified three asset
enhancement initiatives at Paragon, which is expected to generate an
estimated NLA of 10,000 sqft (to be phased in from FY16) and
improve the operational efficiency of the mall. We note that SPH
REITs sponsor pipeline property, The Seletar Mall, is slated for
completion in Dec 2014. SPH REIT currently has a strong balance
sheet, with gearing and cost of debt unchanged QoQ at 26.9% and
2.33% respectively. We make only minor adjustments to our forecasts
as the quarterly showing is consistent with our expectations. Retain
HOLD with unchanged fair value of S$0.99.
UPHOLDING ITS STRENGTH
DPU above prospectus forecast
Rental reversion at 8.4%
Keeping view for steady performance



14 Jul 2014
Company Update
SPH REIT | HOLD
Asia Pacific Equity Research



Singapore | REITs

HOLD (maintain)
Fair value

S$0.99
add: 12m dividend forecast S$0.054
versus: Current price

S$1.03
12m total return forecast

1%

Analysts

Kevin Tan (Lead) +65 6531 9810
kevintan@ocbc-research.com
Eli Lee +65 6531 9112
elilee@ocbc-research.com

Key information
Market cap. (m) S$2,586 /
USD2,083
Avg daily turnover (m) S$2 /
USD1
Avg daily vol. (m) 1.9
52-wk range (S$) 0.9 - 1.04
Free float (%) 24.5
Shares o/s. (m) 2,510.5
Exchange SGX
BBRG ticker SPHREIT SP
Reuters ticker SPHR.SI
ISIN code SK6U
GICS Sector Financials
GICS Industry REITs
Top shareholder
SPH - 69.9%

Relative total return 1m 3m 12m
Company (%) na na na
STI-adjusted (%) na na na

Price performance chart

Sources: Bloomberg, OIR estimates
Industry-relative metrics

Note: Industry universe defined as companies under identical GICS classification
listed on the same exchange.
Sources: Bloomberg, OIR estimates

Key financial highlights
Year Ended 31 Aug (S$ m) FY14F FY15F
Gross revenue 199.9 205.9
Total property expenses -51.9 -53.2
Net finance costs -20.0 -20.3
Amount available for distribution 135.2 138.2
DPU per share (S cents) 5.4 5.5
Cons. DPU (S cents) 5.4 5.4
P/NAV (x) 1.2 1.2
NPI margin (%) 74.0 74.2
ROE (%) 5.4 5.4
Debt/Assets (%) 27.0 27.2




Please refer to important disclosures at the back of this document. MCI (P) 004/06/2014
MARKET CAP: USD 2.1B AVG DAILY TURNOVER: USD 1M




OCBC Investment Research
Singapore Equities



2



Exhibit 1: NPI contribution by portfolio assets


















Source: REIT Manager




Exhibit 2: Debt maturity profile





















Source: REIT Manager





OCBC Investment Research
Singapore Equities



3




Exhibit 3: Lease expiry profile


















Source: REIT Manager



Exhibit 4: Quarterly financial highlights


3QFY13 3QFY14 % Chg 2QFY14 % Chg
(S$m) (S$m) (YoY) (S$m) (QoQ)
Gross revenue 49.6 50.4 1.6% 51.0 -1.2%
Property operating expenses -12.8 -12.7 -0.7% -12.2 3.8%
Net property income 36.8 37.7 2.4% 38.8 -2.9%
Management fees -3.8 -3.9 1.4% -3.9 -0.3%
Trust expenses -0.6 -0.5 -3.9% -0.5 0.6%
Finance income 0.0 0.1 97.1% 0.1 35.3%
Finance costs -5.0 -5.0 0.4% -4.9 2.4%
Amortisation of intangible asset -1.2 -1.1 -12.0% -0.9 21.8%
Income support 1.2 1.1 -12.0% 0.9 21.8%
Net income 27.5 28.3 3.2% 29.5 -4.1%
Net change in fair value of financial derivatives 0.0 0.0 nm 0.0 nm
Change in fair value of investment properties 0.0 0.0 nm 0.0 nm
Gain on divestment of investment property 0.0 0.0 nm 0.0 nm
Total return for the year before income tax expense 27.5 28.3 3.2% 29.5 -4.1%
Income tax expense 0.0 0.0 nm 0.0 nm
Total return for the year after income tax expense 27.5 28.3 3.2% 29.5 -4.1%
Non-tax deductible expenses, net and other adjustments 5.7 5.6 -1.5% 5.4 3.7%
Change in fair value of investment properties 0.0 0.0 nm 0.0 nm
Income available for distribution 33.1 33.9 2.4% 34.9 -2.9%
Less: Non-controlling interests 0.0 0.0 nm 0.0 nm
Less: Other adjustments 0.0 0.0 nm 0.0 nm
Total amount available for distribution 33.1 33.9 2.4% 34.9 -2.9%
Distributions per unit (S cents) 1.33 1.35 1.5% 1.39 -2.9%

Source: REIT Manager









































































OCBC Investment Research
Singapore Equities


Company financial highlights


Company financial highlights
Income statement
Year Ended 31 Aug (S$ m) FY14F FY15F
Gross revenue 199.9 205.9
Total property expenses -51.9 -53.2
Net property income 148.0 152.7
Net finance costs -20.0 -20.3
Management fees -15.1 -15.4
Other expenses -2.3 -2.3
Net income 110.5 114.7
Total return for the period 119.7 120.8
Adjustments 15.5 17.4
Amount available for distribution 135.2 138.2
Balance sheet
Year Ended 31 Aug (S$ m) FY14F FY15F
Investment properties 3,074.2 3,091.3
Properties under development 0.0 0.0
Cash 66.2 70.6
Total current assets 72.2 76.7
Total assets 3,160.9 3,179.7
Current liabilities ex debt 26.0 26.8
Debt 852.9 863.9
Total liabilities 921.1 933.9
Unitholders' funds 2,239.8 2,245.8
Total equity and liabilities 3,160.9 3,179.7
Cash flow statement
Year Ended 31 Aug (S$ m) FY14F FY15F
Total return 119.7 120.8
Adjustments 29.6 32.5
Operating income before working cap chgs 149.3 153.3
Change in working capital 1.3 1.7
Cash generated from operating activities 150.6 155.0
Cashflow from investing activities -11.1 -11.1
Cashflow from financing activities -135.6 -139.5
Change in cash 3.9 4.4
Cash at beginning of period 62.3 66.2
Cash at end of period 66.2 70.6
Year Ended 31 Aug (S$ m) FY14F FY15F
DPU per share (S cents) 5.4 5.5
NAV per share (S cents) 89.0 88.7
P/E (x) 21.6 21.5
P/NAV (x) 1.2 1.2
NPI margin (%) 74.0 74.2
Net income margin (%) 55.3 55.7
Debt/Assets (%) 27.0 27.2
DPU yield (%) 5.2 5.3
ROE (%) 5.4 5.4
ROA (%) 3.8 3.8
Sources: REIT Manager, OIR forecasts

























































Important disclosures


OCBC Investment Research
Singapore Equities


SHAREHOLDING DECLARATION:

The analyst/analysts who wrote this report holds/hold NIL shares in the above security.



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