Taking a Look at SPH Reit

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I personally believe that the long term yield spread between SGS & UST is unlikely to stay compressed for long and should normalize back towards around 20-25 basis points. With the possibility of a Fed's rate hike soon, speculation will most likely intensify. Therefore once the exact time table for interest rate hike comes to light, we should see more upward pressure on SGS yields which, I think, would affect both perp/long term bonds and Reits in some way.

Pure local retail Reits are currently in my watch list. SPH Reit is one of them that interest me as its price action has been quite resilient lately.

The 4th quarter result for SPH Reit showed a comparison to its "pro forma" 4Q 2013 results. What I did here is to strip the results down to 4 quarters side by side for the whole of full year 2014 for better reference.

Table from Shareinvestor and included the 4Q data myself

I notice the numbers, if stacked side by side, generally showed consistency. The total return before tax portion was much greater because of its inclusion of the fair value change on Paragon and The Clementi Mall as at 31 August 2014. If you remove the fair value change, the total return before tax comes to around 29mil which is comparable with its previous quarters.

This in turn also inflated the EPU to 5.24. If we strip away the fair value inclusion, EPU should be around 1.15cts which is also comparable with their past quarters.

The majority of their non current liability comes from their S$843.1 million loan stated at amortised cost. The loan has repayment terms ranging from three to seven years, of which S$250 million is repayable on 23 July 2016, S$300 million on 23 July 2018 and S$300 million on 22 July 2020. Which means no refinancing till 2016.

100% occupancy track record, low gearing of 26%, but price to book at 1.14x. Full year EPU of 9.067cts also means PE is at 11.746x. If we strip out the fair value inclusion, we get a full year EPU of around 5cts which works out to be 21.3x PE. Even though Paragon and Clementi Mall are stable local assets, I find its PE to be high, relative to its competitors. Will be waiting patiently.