SPH Reit is almost always the first company on my watchlist to release its results every quarter. This time, it took on an additional significance as it is my single largest holding currently. Thus, I was very keen to know how it performed in the last quarter.
I heaved a sign of relief when the result was released – it was business as usual for SPH Reit though I was a bit disappointed that no announcement was made on the acquisition of Seletar Mall.
Both of their existing malls (Paragon & Clementi Mall) are 100% occupied and the upward reversions in rents renewed pushed up the revenue further by about 2%. The net income gained a much bigger 6% due to lower operating expenses – which is definitely great to have when labour cost has been going up unabatedly.
Gearing was almost constant at about 26%, though a closer look at the balance sheet showed a shift of ~ $135 Mln from Long Term to Short Term liability – indicating a need to make a significant loan repayment within a year. I hope they are still able to get a similar loan at low and hopefully fixed interest rate when they renew the loan. It’s overall cost of debt remains at 2.8% and ~ 86% of the loans in value have fixed interest rate. This will be something that I will be watching out for in the coming quarters.
Net cash flow remains healthy and constant. For last quarter, it generated ~ $ 42 Mln cash from operations, which was sufficient to pay shareholders $36 Mln as dividend after netting off the interests of the loans and some minor capital investment.
The Dividend per share is 1.37 cents this quarter. It is 4.11 cents for the last 3 quarters combined (slightly better the same 3 quarters last year).
At the current share price of 99.5 cents, dividend yield is 5.5%, which is at the midpoint of historical yield range of 5.0 to 6.1%.
Net Asset Value (NAV) per Share is 94 cents, which means the current share price is 105.8% over its NAV.
So, in a nutshell, it is business as usual in SPH Reit – which I am thankful.
If I may quote from one of the blog sites that I visit often, “Trading in stocks may be exciting and fun, but it is usually the boring stuff that makes the money for you!” I agree with him.
Hence, I think SPH Reit is just one of those “boring” companies but one that is almost certain to give you at least 5% dividend yield year in year out. That is music to my ears as it is exactly what I am aiming for.
Some of you may ask if it is still worthwhile to buy SPH Reit now.
- In my personal opinion, if you have the same investment target as me, and if it is your first foray into SPH Reit, you can consider to buy in small quantities to receive those dividends and average downwards if its price falls. (NOTE: Monday 17/7 is the last day to buy if you want to collect this quarter dividend)
- But if you are already vested like me, then let just sit back, receive the dividends in our banks and then accumulate more if it does go down in price in the coming months.
There has been a lot of talks about the impact of e-commerce on retail malls lately. I don’t discount the impact – I am quite an active buyer from the internet stores myself so I can attest to that attraction. Retail malls cannot be run the same way as they have been in the past. They need to integrate the e-commerce and the new social media into their offerings and design of marketing plans. They need to differentiate to draw the customers in.
I believe that retail malls still have a role in our society. They will not just go away. People generally still like to walk around, watch the movies at the cinemas, chill out with friends and have a dinner with family etc and we need a space for us to satisfy all these needs. Hence, I feel comfortable to invest in SPH Reits as both of their malls ar well located to serve these needs.
By the way, if you want to be absolutely safe in your SPH Reit investment, i.e. Obtain a big safety margin, then I suggest you exercise patience and wait for its share price to drop below 95 cents.
Good luck and all the best in your investments in the coming week.
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