DBS Equity Research and OCBC Investment Research have both reiterated a ‘Buy’ rating on SPH REIT after its 2Q 2017 results came in largely within expectations.

SPH REIT announced on 10 April that it has achieved a DPU of 1.40 Singapore cents for the quarter, which is flat from the corresponding period of 2016.

This was despite gross revenue and net property income growing by 1.7% and 5.2% year-on-year to SGD54 million (USD38.5 million) and SGD42.7 million respectively.

OCBC pointed to SPH REIT’s robust occupancy of 100%, and a healthy gearing of 25.7% as factors, among others, as to why it has reiterated a ‘Buy’ rating on the counter.

The firm has also given a higher fair value estimate of SGD1.08, up from SGD1.04 previously as they have incorporated a lower discount rate of 6.7%, down from 6.9%.

Meanwhile, in its report issued on 11 April, DBS is positive that SPH REIT would benefit from an acquisition of Seletar Mall, as it would then derive a higher proportion of its income from necessity shopping - rising from 20% to 32%.

“We believe that this is an opportune time for SPH REIT to consider acquiring The Seletar Mall from its sponsor, most ideally within the next six months prior to the completion of [the property’s]first renewal cycle at the end of 2017”, said DBS indicating that the mall could be purchased for about SGD500 million.

“Following the acquisition, there could be a 3-4% lift in DPUs on the assumption of an optimal funding scenario which involves a partial equity fund raising of SGD200 million”, DBS added.

DBS has raised the target price for the retail REIT from SGD1.03 to SGD1.04.

SPH REIT finished the trading day about 2% higher from the previous close on the Singapore Exchange to end at SGD0.995.

By Ridzwan Rahmat

Ridzwan has been analysing REITs and business trusts since 2008, and personally manages a portfolio comprising mainly of SGX-listed REITs. He founded REITsWeek in 2013.