Time flies. We are now into the final quarter of calendar year 2020. With that, we are into another round of earnings season, where, over the next couple of weeks, we await for companies to release their updates for the quarter ended 30 September 2020.

Just like in the previous quarters, I will be providing updates on companies in my long-term investment portfolio (you can check out all the companies I’ve invested in here) as and when the management make available the latest updates.

SPH REIT (SGX:SK6U) was the first company that released its financial results for the second half of the financial year 2019/20 (period between 01 February and 30 August 2020), as well as for the full-year 2019/20 yesterday evening (06 October 2020) after market hours.

In this post, you will find key components of the retail REIT’s latest results to take note of, along with my personal thoughts…

Financial Results (2H FY2018/19 vs. 2H FY2019/20, and FY2018/19 vs. FY2019/20)

In this section, you will find the REIT’s financial performance for the second-half of the financial year 2019/20 compared against the same period last year (i.e. 2H FY2018/19), as well as the REIT’s full-year results for FY2019/20 compared against its results for the previous financial year 2018/19:

2H FY2018/19 vs. 2H FY2019/20:

2H FY2018/192H FY2019/20% Variance
Gross Revenue
(S$’mil)		$116.7m$108.1m-7.4%
Property Operating
Expenses (S$’mil)		$24.6m$29.6m+20.5%
Net Property
Income (S$’mil)		$92.1m$78.4m-14.9%
Distributable Income
to Unitholders ($’mil)		$73.7m$28.7m-61.1%

It was a weaker set of results reported by the REIT for the second half of the financial year 2019/20 (compared against the second half of the financial year 2018/19), where its gross revenue declined due to rental waivers and reliefs granted by the landlord to its tenants (amounting to S$31.8m), offset by contributions from the newly acquired Westfield Marion in December 2019 (amounting to S$24.9m); property operating expenses saw an increase (compared to last year) due to operations in Westfield Marion Shopping Centre.

FY2018/19 vs. FY2019/20:

FY2018/19FY2019/20% Variance
Gross Revenue
(S$’mil)		$228.6m$241.5m+5.6%
Property Operating
Expenses (S$’mil)		$48.9m$59.5m+21.8%
Net Property
Income (S$’mil)		$179.8m$181.9m+1.2%
Distributable Income
to Unitholders ($’mil)		$144.8m$72.8m-49.7%

On a year-on-year (y-o-y) basis, the REIT’s gross revenue was up 5.6% due to contributions from its 50.0% interest in Westfield Marion (which contributed S$37.5m), and full-year contribution from Figtree Grove (which contributed S$15.9m), offset by S$31.8m of rental waivers and reliefs provided by the landlord to eligible tenants in Singapore.

Its distributable income to unitholders fell due to the management’s decision to withhold part of it for prudence in financial management due to uncertainties relating to Covid-19.

My Thoughts: Personally, I feel that on a y-o-y basis, the REIT’s results was a decent one. With regard to the withholding of some distributable income to unitholders is concerned, it was pretty much within my expectations – no doubt we are currently into Phase 2 of the safe transition, where a huge majority of businesses have resumed their business activities, there is always a possibility of a second wave the moment we are not careful (just look at how some countries have saw a second wave of outbreak, like our neighbouring country Malaysia, and Hong Kong, and also how the government was forced into implementing a certain level of movement restrictions to curb the community spread of the virus, and businesses suffer as a result.) As such, in times like this, I am in support of the management’s decision to exercise prudence.

Portfolio Occupancy Profile (FY2018/19 vs. FY2019/20)

The following table is the REIT’s portfolio occupancy profile for FY2019/20, compared against its portfolio occupancy profile reported last year (i.e. FY2018/19):

FY2018/19FY2019/20
Portfolio Occupancy
(%)		99.1%97.7%
Rental Reversions
(%)		+8.4%+5.9%

My Thoughts: No doubt there was a slight 1.4 percentage points (pp) y-o-y dip in its portfolio occupancy due to a drop in occupancy in Paragon (from 99.8% in FY2018/19 to 97.8% in FY2019/20), and in The Clementi Mall (from 100.0% in FY2018/19 to 99.6% in FY2019/20), but I am happy to see the REIT continuing to maintain a positive rental reversion (from my understanding, this was due to leases that were renewed, as well as new leases committed before the onset of Covid-19 for the Singapore assets.)

I will continue to keep tabs on the REIT’s portfolio occupancy profile in the next few quarters.

Debt Profile (FY2018/19 vs. FY2019/20)

Moving on, let us have a look at the REIT’s debt profile for FY2019/20 (ended 30 August 2020), compared against its debt profile recorded for FY2018/19 (ended 30 August 2019) in the table below:

FY2018/19FY2019/20
Gearing Ratio
(%)		27.5%30.5%
Average Term to
Debt Maturity (years)		2.5 years2.9 years
Average Cost of
Debt (%)		2.9%2.7%

My Thoughts: No doubt the REIT’s gearing ratio have gone up (by 3.0pp to 30.5%), but it is still quite a distance away from the new regulatory limit of 50.0%. Also, I understand that the REIT does not have any re-financing due till June 2021.

I’m also happy to note that its average cost of debt have come down slightly, along with the average term to debt maturity going up as well.

Distribution Per Unit (Q4 FY2018/19 vs. Q4 FY2019/20, and FY2018/19 vs. FY2019/20)

Q4 FY2018/19 vs. FY2019/20:

Compared to Q4 FY2018/19 (where its distribution per unit was 1.46 cents/unit), the REIT’s distribution per unit fell 63.0% on a quarter-on-quarter (q-o-q) to 0.54 cents/unit, due to the management withholding some distribution for prudence (as mentioned earlier on in this post.)

Some of the dates you need to know as a unitholder as far as distribution payouts are concerned can be found below:

Ex-date: 13 October 2020
Record date: 14 October 2020 at 17:00hrs
Payout date: 20 November 2020

FY2018/19 vs. FY2019/20:

On a y-o-y basis, the REIT’s distribution payout was down by 51.2% to 2.72 cents/unit (FY2018/19: 5.60 cents/unit.)

My Thoughts: As I have mentioned earlier, this was within my expectations due to uncertainties relating to Covid-19.

In Conclusion

In my personal opinion, the latest set of results released by SPH REIT was a decent one – whether is it in terms of financial figures, debt profile, or portfolio occupancy profile.

The withholding of distributions by the management, as I’ve also mentioned earlier on in this post, was also within my expectations (though I’m interested to know whether or not the management have any timeline in mind as to when they intend to return them to the unitholders.) I intend to put forth this question when the release the details of the annual general meeting (which at this point in time, there were no tentative dates provided – I will continue to keep a lookout for it and provide updates accordingly.)

Disclaimer: At the time of writing, I am a unitholder of SPH REIT.

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