SPH REIT – Pointing to Early Signs of Recovery in Retail?

reits retail sph reit stocks Jan 18, 2021

by: Tam Ging Wien


All examples and stocks quoted here in this article and on the ProButterfly.com and REITScreener.com site are for learning purposes; it does NOT constitute financial advice or a Buy/Sell recommendation. Contents are reflective of personal views and readers are responsible for their own investments and are advised to perform their own independent due diligence and take into account their own financial situation. If in any doubt about the investment action you should take, you should consult a professional certified financial adviser.


This week, SPH REIT released its Q1-FY2021 business updates. To set the context right, readers should note that SPH REIT does not follow the usually “calendar quarters” as its financial year starts on 01-September to 31-August, therefore its quarters are as follows:

  • SPH REIT Q1: 01-Sep to 30-Nov
  • SPH REIT Q2: 01-Dec to 28/29-Feb
  • SPH REIT Q3: 01-Mar to 31-May
  • SPH REIT Q4: 01-Jun to 31-Aug

The timelines of Singapore’s COVID-19 defence phases are as follows for easy reference:

  • Circuit Breaker: 07-Apr-2020 to 01-Jun-2020
  • Phase 1: 02-Jun-2020 to 18-Jun-2020
  • Phase 2: 19-Jun-2020 to 27-Dec-2020
  • Phase 2 with TraceTogether Token Distribution: 14-Sep-2020 onwards
  • Phase 3: 28-Dec-2020 onwards at time of writing

These time periods are important as Singapore had transition through the Circuit Breaker, Phase 1, Phase 2 and finally Phase 3 periods which do not overlap in terms of the SPH REITs reporting quarters when comparing to other retail REITs like Lendlease Global REIT (LREIT), Starhill Global REIT (Starhill), Frasers Centrepoint Trust (FCT) and Capitaland Integrated Commercial Trust (CICT).

For a good context, it is also readers may also reference our article last year about SPH REIT’s 2 key Singapore assets – Paragon and Clementi Mall:

Making Sense of the Q1-FY2021 Key Business Updates

SPH REIT declared a DPU of 1.2c for the quarter Q1-FY2021, down 1.38c a year ago. This came even as gross revenue rose by 10.8% to S$66.6 million in the same period. The management attributed this jump in gross revenue due to the inclusion of its 50.0% interest in Westfield Marion Shopping Centre, South Australia.

As one year ago, the quarter spanned 01-Sep to 30-Nov and before the impact of COVID-19 and before the completion of the it’s 50.0% interest in Westfield Marion which was only completed in 06-Dec-02019, comparison is not exactly apples-to-apples.

Perhaps, it would be fairer to compare SPH REIT’s Q4-2020 to Q1-2021:

  • As both periods were during the Phase 2 reopening periods
  • As both periods already had full contribution from Westfield Marion Shopping Centre
  • Adjustment for the deferred dividend distribution which 0.52c was retained in FY2020 of which 0.13c was released for Q1-FY2021

If observation serves us right, it seems that the management is thinking of distributing the 0.52c retained in FY2020 spread evenly over the 4 quarters in FY2021.


Source: SPH REIT

Source: SPH REIT


Source: SPH REIT

With the figures from past announcements aggregated and assuming the ratios are in accordance with the tenant sales contribution of the per quarter for Singapore (SPH REIT announced the figures on a half-yearly basis in FY2020) and equal distribution for the Australian assets, we tallied up Q4-2020 with Q1-2020 with the adjustments made above, we get approximately:


Source: ProButterfly ResearchREITScreener Research

From our estimates, it seems that the Gross Revenue is likely to have improved slightly by anywhere from 5.0% to 6.0% and this indicates to us that SPH REIT is experiencing early signs of recovery.

From a DPU angle, SPH REIT had declared a DPU of 0.54c for Q4-FY2020 and a DPU of 1.2c in Q1-FY2021. But since part of the DPU consist of the 0.13c that was retained in Q4-FY2020, adjusting it assuming a 2:1:1 ratio would give an adjusted DPU of 0.67c and 1.07c respectively, a clear increase.

There where certainly more rental rebates provided to tenants during Q4-FY2020 as it the Month of Jun-2020, Singapore was still in the Phase 1 period.

Improvement in Both Visitor Traffic and tenant Sales

As Singapore gradually relaxed the COVID-19 safety measures, we can see a noticeable improvement in the visitor traffic to both Paragon and The Clementi Mall.

With international borders still closed and air travel bubbles postponed, locals appear to be more willing to spend on local luxuries which seems to explain the improving tenant sales at Paragon Mall.


Source: SPH REIT

Respectable Occupancy Rate

Given so much talk about the retail apocalypse in the media with photos of empty retail malls in the US, Singapore has not shown a severe cave in the retail scene save for the multiple closures and consolidation of department stores over the years such as Sogo, John Little, Metro and most notably Robinsons. Retail malls in Singapore still show a relatively healthy foot traffic as observed from statistics released by the various retail REITs in Singapore.

SPH REIT while having enjoyed 100% occupancy rate in the past years in Paragon and The Clementi Mall, this year having fallen to 97.9% is still very respectable. I think investors couldn’t ask for more in this current climate – having a high nineties occupancy rate suggest stability in the coming year.


Source: SPH REIT

Will SPH REIT Continue to Pay 100% of Management Fees in Units

SPH REIT has been changing the percentage of how my it pays it Management Fee in Units over the years and is presently paying 100%.

We have compiled the last 5 years of SPH REIT’s Management Fee paid in Units ratio:

  • FY2020:0%
  • FY2019:4%
  • FY2018:0%
  • FY2017:6%
  • FY2016:0%
  • FY2015:0%

We foresee that management is likely to retain a 100.0% management fee in units until the situation fulled recovers to pre-COVID levels which would probably mean higher cash distributions for unitholders throughout FY2021 but also a larger dilution.

Gearing Managed, But Beware of Perpetual Securities

The gearing ratio was not officially announced for Q1-FY2021, but it was stated as 30.5% for Q4-FY2020. Given that the valuations of the assets and the debt profile is relatively similar, we do not expect significant change here. This gives SPH REIT a good debt headroom.

Given that is debt profile is fairly well distributed over the next 5 years, management actively seeking to refinance the debt of S$215.0 due July-2021 and a very low interest rate of 1.82% p.a., we are quite confident that SPH REIT has as grasps of its capital management.

However, readers should also noted that SPH REIT had issued S$300.0mil perpetual securities at 4.10%, an interest rate much higher than what we are able to obtain from lenders today. While we appreciate that this is to diversify some of its source of funding, the perpetuals are still issued at a very high interest rate and this would bleed some cash every year reducing ability to pay dividends but keeping its gearing low.

We estimate that if these perpetuals where issued as normal bonds instead, the gearing could be closer to 37.5%.


Source: SPH REIT

Will Other REITs Release their Retained Dividends?

Considering SPH REIT was the first to announce the dividend retention back in early-2020 and the first to announce redistribution of the retained dividend, we think that other retail REITs that had also done so would start redistributing those this year as well. Mapletree Commercial Trust (MCT) and Frasers Centrepoint Trust (FCT) are prime candidates for these which are likely to play favourably for their prices in the coming weeks or months.

Concluding Remarks

While we are not specifically invested in SPH REIT, we think that following SPH REIT’s performance and data releases gives us a good indication of the direction of recovery in the Singapore retail scene.

SPH REIT due to its “earlier” reporting period and dates gives us a good indication of how its peers like CICT, FCT and MCT’s Vivocity is likely to perform allowing is us to make early decisions on our exposure and positioning in other retail REITs.

Given what we have seen from SPH REIT’s data, we are cautiously optimistic of the following:

  • Retail figures for other S-REIT peers are likely to improve in Q4-2020
  • Other S-REIT peers are likely to begin to distribute the distributions that were retained in 2020
  • Tenant sales and foot traffic are likely to improve in Q4-2020 compared to Q3-2020 with the relaxing of Phase 2 measures and the start of Phase 3 on 28-Dec-2020
  • Gradual recovery of retail tenant sales throughout 2021 as vaccine stock becomes available to the public

A risk that we do still see are is the “retrenchment” and “bankruptcy” wave that could be on the cards for 2021. 2020 was a bad year for the economy, but it was largely buffered by historically large government fiscal spending and COVID-19 relieve packages which are likely to reduce in 2021. Could we see a “retrenchment” and/or “bankruptcy” wave in 2021 as these relieve packages expire or rolled back? What is the impact on the economy?

Another potential risk could come from the reopening of the boarders. In general, Singapore has shielded itself well from external spread due to tight control of its borders. Could the gradual reopening of Singapore’s boarders with other countries result in another surge in cases? Would the effectiveness of the nationwide vaccine distribution keep Singapore’s cases low?

Despite the risk, we do not believe that we should be holding 100% of our funds in cash. Taking a queue from SPH REIT’s results, we have deployed a good proportion of that into retail and commercial S-REITs which we think are likely to benefit from this early sign of recovery. We still retain 50% of our cash reserves to take advantage of any opportunity that may present itself during 2021, balancing both the recovery signs that we observe and the risk that we foresee in the coming year.

Positioning to Ride the Recovery

Opportunities and Risk Post-COVID-19 Pandemic in the various S-REIT Sectors

The COVID-19 crisis has brought about an unprecedented economic shock to many sectors, and yet it has also generated opportunities in others.

The tech sector has been a major beneficiary and along with that, S-REITs exposed to the Data Centre sector such as Keppel DC REIT and Mapletree Industrial Trust gained phenomenally.

But are the investment opportunities in REITs now gone? Personally, we do not think so. There are still many REITs below their pre-COVID-19 levels poise to recover strongly in the coming quarters – and now it is the best time to prepare to capture the post-COVID recovery.

Join us as we discuss the opportunities and risk in the S-REIT space sector-by-sector as we try to uncover recovery opportunities for FY2021 and beyond. Real estate sectors that we will be covering include the Retail, Hospitality, Offices, Healthcare, Industrial and Data Centres.

Our speaker Tam Ging Wien will be sharing his knowledge and experience including:

  • Part 1: A Survey of the REITs Landscape Around The World
  • Part 2: Key Metrics in Identifying Strong REITs
  • Part 3: Real Estate Sector Review Amidst the COVID Crisis
  • Part 4: Screening for Opportunities
  • Part 5: Q&A

Some key highlights that will be covered includes:

  • Real estate sector-by-sector review on COVID-19 impact and recovery opportunities. Sectors covered include the Retail, Hospitality, Offices, Healthcare, Industrial and Data Centres.
  • Opinion on which sector will continue to stay resilient and which are poised to recover quickly post-pandemic
  • The right metric to use when screening for high quality REITs
  • Case studies of REITs which are considered high quality
  • Step-by-step demo of how to screen for high quality REITs on your own

During the sharing session, various Singapore-listed REIT examples will be used.

There will also be a Q&A so that members of the investing community may engage in open dialog and discussions in order to deepen their understanding of REITs. Do prepare your writing materials for note taking.

Please note that the duration of the on-site seminar is 7pm to 9:45pm Singapore Time (GMT +8).

The details of the event are as follows:

  • Seminar: Positioning To Ride The Recovery
  • Date: 5th May 2021 (Wed)
  • Time: 7:00pm to 9:45pm
  • Venue: RNN Conference Centre - Kyoto Training Room (Level 4), 137 Cecil Street, Cecil Building #04-01, Singapore 069537
  • Fees: S$10.00
  • Sign-up Link: http://reitessentials.eventbrite.com/

To learn more about REITs, we recommend the article: What are REITs?

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