In a blink of the eye, we are now into the fourth (and final) quarter of the calendar year 2021 – I certainly hope you’ve had a fruitful one so far, despite the still ongoing Covid-19 pandemic causing some disruption to our daily activities.

Speaking of which, as we head into another new quarter, we enter another round of earnings season, where many of the companies will be reporting their third quarter results ended 30 September 2021 in the weeks ahead.

Yesterday evening (04 October 2021), SPH REIT (SGX:SK6U) – with properties in Singapore (Paragon, The Clementi Mall, and The Rail Mall), and in Australia (Westfield Marion Shopping Centre in Adelaide, and Figtree Grove Shopping Centre in Wollongong, New South Wales), released its results for the second half of the financial year (period between 01 February and 31 August 2021), and also for the full-year 2020/21 ended 31 August 2021.

As a unitholder of the retail REIT, I have studied the documents posted and in today’s post, you’ll find a summary of its latest financial results, portfolio occupancy and debt profile, and its distribution payouts, along with my personal thoughts and outlook for the REIT in the financial year ahead:

Financial Performance (2H FY2019/20 vs. 2H FY2020/21, and FY2019/20 vs. FY2020/21)

2H FY2019/20 vs. 2H FY2020/21:

2H FY2019/202H FY2020/21% Variance
Gross Revenue
(S$’mil)
$108.1m$137.2m+27.0%
Property Operating
Expenses (S$’mil)
$29.6m$39.4m+33.2%
Net Property
Income (S$’mil)
$78.4m$97.8m+24.6%
Distributable Income
to Unitholders
(S$’mil)
$28.7m$82.4m> 100.0%

On the whole, the REIT’s results for the second half of FY2020/21 were better compared to last year, as a majority of tenants had resumed their normal business activities (albeit with safe distancing measures still in place), which brought about a gradual recovery in tenant sales. Along with that, rental assistance granted to eligible tenants for the current period under review was lower compared to the same time period last year.

FY2019/20 vs. FY2020/21:

FY2019/20FY2020/21% Variance
Gross Revenue
(S$’mil)
$241.5m$277.2m+14.8%
Property Operating
Expenses (S$’mil)
$59.5m$74.6m+25.3%
Net Property
Income (S$’mil)
$181.9m$202.6m+11.4%
Distributable Income
to Unitholders
(S$’mil)
$72.9m$150.2m> 100.0%

On a full-year basis, the retail REIT’s top- and bottom-line results have also improved – which can be contributed by a recovery in tenant sales, reduction of rental assistance granted to eligible tenants, along with a full-year contribution from the 50.0% interest in Westfield Marion Shopping Centre acquired on 06 December 2019.

Another thing to note is the huge jump in its distributable income to unitholders – this is due to the release of $14.5m (or 0.52 cents/unit) of distributable income retained in the last financial year FY2019/20 (due to prudence as a result of uncertainties surrounding the Covid-19 pandemic.)

Portfolio Occupancy Profile (Q3 FY2020/21 vs. Q4 FY2020/21)

Moving on, let us take a look at the REIT’s portfolio occupancy profile, where I will be comparing the statistics recorded for the current quarter under review (i.e. Q4 FY2020/21 ended 31 August 2021) against that recorded in the previous quarter 3 months ago (i.e. Q3 FY2020/21 ended 31 May 2021) to find out if they have strengthened or weakened:

Q3 FY2020/21Q4 FY2020/21
Portfolio Occupancy
(%)
98.4%98.8%
Portfolio WALE (by
Net Lettable Area – in Years)
5.4 years5.4 years
Portfolio WALE (by
Gross Rental Income – in Years)
3.0 years2.7 years

Compared to the previous quarter, the retail REIT’s portfolio occupancy rate have improved slightly (by 0.4 percentage points to 98.8%) due to improvements from Paragon (whose occupancy have improved from 97.3% in Q3 FY2020/21 to 99.1% in Q4 FY2020/21), as well as from Westfield Marion Shopping Centre in Australia (where its occupancy rate improved from 98.5% in Q3 FY2020/21 to 98.8% in Q4 FY2020/21) – however, this was offset by a slight dip in the occupancy rate in The Clementi Mall (down from 100.0% in Q3 FY2020/21 to 99.9% in Q4 FY2020/21), The Rail Mall (down from 100.0% in Q3 FY2020/21 to 92.2% in Q4 FY2020/21), as well as a dip in occupancy rate in Figtree Grove Shopping Mall (down from 99.5% in Q3 FY2020/21 to 99.1% in Q4 FY2020/21).

Another thing to highlight is the REIT’s rental reversion, where it fell from a positive +5.9% in FY2019/20 to negative -8.4% in FY2020/21 – this was totally within my expectations as most of the retail REITs place their focus on filling up the occupancy rate of the malls at the expense of lower rental rates (for new and renewed leases.)

Debt Profile (FY2019/20 vs. FY2020/21)

As the REIT did not release its gearing ratio for the third quarter of FY2020/21, I wasn’t able to do a comparison of its debt profile recorded for the current quarter under review against that recorded in the previous quarter.

Therefore, in this section, I will be comparing the REIT’s debt profile recorded for FY2020/21 (ended 31 August 2021) against that recorded in the previous financial year (i.e. FY2019/20 ended 31 August 2020):

FY2019/20FY2020/21
Aggregate Leverage
(%)
30.5%30.3%
Average Term to Debt
Maturity (years)
2.9 years2.9 years
Average Cost of
Debt (%)
2.7%1.8%

Personally, I felt that the REIT’s debt profile has continued to remain resilient – its aggregate leverage, at 30.3%, is still a good distance away from the regularly limit of 50.0%, facilitating the REIT to make further yield accretive acquisition. Another thing to note is that its cost of debt have also decreased to 1.8%, and that its interest coverage ratio at the end of FY2020/21 is at 7.3 times.

In terms of debt maturity, $155m (or 11.9%) of the REIT’s borrowings will be maturing in the coming financial year 2021/22 ahead, $330m (or 25.4%) will be maturing in FY2022/23, $115m (or 8.8%) will be maturing in FY2023/24, and the remaining $700m (or 53.9%) of its borrowings will be maturing in FY2024/25 or later – in my opinion, its debt maturity is well-spread out.

Distribution Payout to Unitholders (Q4 FY2019/20 vs. Q4 FY2020/21, and FY2019/20 vs. FY2020/21)

For the current quarter under review, a distribution payout of 1.58 cents/unit was declared, a huge improvement from the 0.54 cents/unit declared for the same time period last year.

On a full-year basis, SPH REIT’s distribution payout also increased from 2.72 cents/unit (declared for FY2019/20) to 5.4 cents/unit (declared for FY2020/21.)

If you are a unitholder of the retail REIT, here are the following dates on its distribution payout you need to take note of:

Ex-Date: 12 October 2021
Record Date: 13 October 2021
Payment Date: 19 November 2021

Closing Thoughts

Improvements from the retail REIT’s full-year results was largely within my expectations, as compared to last year where the retail industry were battered from the 2-month ‘circuit breaker’ period imposed by the Singapore government to break chain of transmission. Subsequently, gradual relaxation of the safe distancing measures have seen most of the retailers resuming their business operations this year.

Another thing I like about the retail REIT’s latest set of results is its debt profile – where there remains plenty of debt headroom for it to embark on further yield-accretive acquisitions to boost its top- and bottom-line performance.

Looking ahead, I am of the opinion that even though more countries may be included under the “Vaccinated Travel Lane” arrangement in the coming months ahead, but given the sharp rise in the number of community cases, coupled with travellers coming here may have to spend time under quarantine when they return home, this may dissuade many of them from visiting Singapore for now. Also, because of the sharp rise in the number of cases and many Singaporeans choosing to stay home to protect themselves for now, it will certainly be a while before retail sales go back to pre-Covid levels (especially that from Paragon, where many of the tenants in the mall rely on tourist arrivals.)

With that, I have come to the end of my review of SPH REIT’s second half and full-year results. Do take note that everything you have just read above is purely for educational purposes only, and that they do not represent any buy or sell calls for the REIT’s units. You should always do your own due diligence before you make any investment decisions.

Related Documents

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

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