SPH REIT (SGX:SK6U) held its 7th annual general meeting (AGM) for the financial year 2019/20 ended 31 August 2020 this afternoon.

Due to the safe distancing measures imposed by the Singapore government in light of the ongoing Covid-19 pandemic, the meeting was held online. As a unitholder, I have signed up and attended the meeting to receive the latest updates from the REIT’s management.

In this post, you’ll find a summary of the presentation by CEO of the REIT, Ms Susan Leng Mee Yin, along with my personal thoughts to share…

Summary of Presentation by CEO Ms Susan Leng Mee Yin

Financial Performance:

  • The following is the REIT’s financial performance for FY2019/20 compared to the previous financial year 2018/19:
    • Gross Revenue: Up by 5.6% to S$241.5m (FY2018/19: S$228.6m)
    • Net Property Income: Up by 1.2% to S$181.9m (FY2018/19: S$145.0m)
    • Distributable Income to Unitholders: Down 49.7% to S$72.9m (FY2018/19: S$144.8m), due to the deferment of S$14.5m of income available of distribution that is allowed under the Covid-19 relief measures announced by IRAS for prudence, as well as allowance for Covid-19 rental arrears and reliefs amounting to S$8.1m for eligible tenants in Australia
    • Distribution Per Unit: Down 51.4% to 2.72 cents/unit (FY2018/19: 5.60 cents/unit), with 0.52 cents/unit being deferred
  • In terms of the REIT’s performance for FY2019/20, Ms Leng shared that for the first half of the financial year, its performance was within expectations. However, for the second half of the financial year, the Covid-19 pandemic has affected the REIT’s mall operations in Singapore and Australia.
  • She added that for the tenants in Singapore, the REIT have provided rental reliefs amounting to S$31.8m, on top of the Singapore government-legislated property tax rebates and cash grants have been. For the REIT’s tenants in Australia, it has adopted the Australia Federal Government’s SME Commercial Code of Conduct and Leasing Principles that was legislated by the States and provided an allowance of rent relief for the tenants amounting to S$8.1m.

Portfolio Occupancy Profile:

  • The following are the REIT’s portfolio occupancy profile as at 31 August 2020
    • Portfolio Occupancy: 97.7%
    • WALE by Net Lettable Area and Gross Rental Income: 5.3 years and 2.6 years respectively (Ms Leng shared that the WALE is well-spreaded, with no concentration of lease expiries in one single year)
    • Rental Reversion: +5.9% (Ms Leng explained that this is due to the REIT renewing expiring leases before the onset of Covid-19)
  • For the REIT’s malls in Singapore, Ms Leng shared that visitor traffic and tenant sales were severely impacted by the 2-month circuit breaker imposed by the Singapore government. Even as Singapore is currently into Phase 2 of the safe transition, Ms Leng explained that the tenant sales in Paragon recovered at a slower pace due to the continued border closure and restrictions, while The Clementi Mall is affected by work from home arrangements.
  • For the REIT’s malls in Australia, Ms Leng updated that there were no lockdowns imposed by the Australian government in the locations which the malls were located, only some form of restricted trading. However, she added that the two malls’ tenant sales have returned to pre-Covid levels.

Debt Profile:

  • The following is the REIT’s debt profile:
    • Gearing Ratio: 30.5%
    • Interest Coverage Ratio: 4.7 times
    • Weighted Average Term to Debt Maturity: 2.9 years
    • Average Cost of Debt: 2.66%
    • No refinancing due till June 2021
    • Revolving credit facility lines of S$225m available, which Ms Leng said they can be drawn when required

Moving Forward:

  • Ms Leng explained that as the Covid-19 pandemic is still ongoing, the extent of the impact on the REIT’s financial performance for the financial year ahead (i.e. FY2020/21) cannot be determined at this point in time
  • She added that the REIT’s focus will be to reduce the number of vacancies in its malls, continue to provide sustainable rental income, as well as to maintain costs.
  • Ms Leng also reassured unitholders that the REIT is committed to release retained distributions for the current financial year in the year ahead.
  • Finally, in terms of acquisition opportunities, Ms Leng said that the REIT has the right of first refusal (or ROFR) to The Seletar Mall, as well as The Woodleigh Mall (which is currently under development.) Also, she added that the REIT will continue to look for suitable acquisition opportunities in the financial year ahead.

Personal Thoughts

What I like about the REIT is its continued high occupancy rate (at 97.7%), and also the fact that its lease expiries are well staggered.

In terms of its debt profile, the REIT’s gearing ratio, at 30.7%, it is one of the lowest among S-REITs. Also, at its current gearing ratio, there remains plenty of debt headroom for the REIT to make further yield-accretive acquisitions before it reaches the regulatory limit of 50.0%.

No doubt the measures relating to leisure travel currently in place may negatively impact The Paragon, but as Singapore’s immigration borders gradually open up to allow tourists to visit Singapore once again (albeit with measures in place), we may see a slow and gradual recovery next calendar year.

Additionally, with the Singapore government on the verge of announcing when Phase 3 of the safe transition will commence, we may see more people returning to their workplaces, and as such, this may benefit The Clementi Mall in terms of its visitor footfall and tenant sales returning.

That said, at this point in time, I remain confident of the REIT’s ability to return to pre-Covid condition and will continue to stay invested.

Related Documents

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

 

Click here to join The Singaporean Investor's Telegram group to receive updates whenever a new post is added to the site.

Click here to learn about a quick and easy way to study about a company (and make a more informed investment decision) without the need to browse through its annual reports.