Will Singapore’s lacklustre retail landscape sink SPH REIT in 2016?

It’s banking on inorganic growth to boost earnings.

Amid the vagaries haunting the macroeconomic landscape, SPH REIT remains a robust investment proposition given its resilient portfolio and solid profits profile.

According to a report by OCBC, SPH REIT survived the headwinds battering Singapore’s retail sector. The REIT managed to deliver positive rental reversions of 4.9% for Paragon, and 4.5% for The Clementi Mall (TCM) for 9MFY16. In addition, SPH REIT’s strong positioning saw both Paragon and TCM fully leased as at 31 May 2016.

Moreover, SPH REIT is poised to enjoy its robust balance sheet propping up potential inorganic growth.

“We believe one growth driver for SPH REIT would come inorganically from its potential acquisition of Seletar Mall, which is 70%-owned by its sponsor SPH. SPH REIT has a right-of-first-refusal on its sponsor’s stake, which has a carrying value of S$495m, as at 31 Aug 2015,” OCBC reported.

“Given SPH REIT’s healthy gearing ratio of 25.7%, we believe it will be able to comfortably finance this acquisition wholly by debt. If this materialises, we estimate that SPH REIT’s gearing ratio would increase to ~35.4%,” it added.

OCBC estimated that the transaction could boost DPU by 3-4% on an annualised basis.