On behalf of the Board of Directors of SPH REIT Management Pte. Ltd., the Manager of SPH REIT (the “Manager”), we are pleased to present you with SPH REIT’s Annual Report for the period from 1 September 2018 to 31 August 2019 (“FY2019”).
SPH REIT has continued to maintain its good track record since our Initial Public Offering (IPO) in July 2013, underpinned by a portfolio of well-positioned and quality properties.
Gross revenue grew by S$16.8 million or 7.9% to S$228.6 million mainly due to contributions from acquisitions. With proactive management of assets, we turned in a net property income (“NPI”) of S$179.8 million for FY2019, which was S$13.8 million or 8.3% higher than last year.
Total income available for distribution to Unitholders was S$145.0 million, an increase of S$2.7 million or 1.9% compared to last ﬁnancial year. The aggregate distribution per unit (“DPU”) for FY2019 of 5.60 cents translated to a distribution of 5.14%, based on the closing price of S$1.09 as at 31 August 2019.
Firstly, in line with our strategy to acquire quality assets, we have completed the acquisition of Figtree Grove Shopping Centre, an established sub-regional shopping centre located in Wollongong, New South Wales Australia on 21 December 2018.
Figtree Grove Shopping Centre sits on a freehold land area of 552,904 sq ft and has a total Gross Lettable Area (“GLA”) of approximately 236,656 sq ft with 940 carpark lots.
It is anchored by a 24-hour Kmart, Coles and Woolworths supermarkets complemented by a strong mix of service-related tenants including medical, ﬁnancial, therapeutic and travel tenants serving the needs of residents and providing them with easy convenience. This variety strikes a good balance of offerings which appeals to the trade area’s catchment.
Secondly, in the year, we have also established a S$1 billion multi-currency debt issuance programme. The programme establishment complements SPH REIT’s capital structure and provides us with options to tap into the capital markets at optimal times, as evidenced by our successful perpetual securities issuance of S$300 million on 30 August 2019.
Paragon welcomed several new stores during the year and occupancy remains high at 99.8%. 11 new F&B concepts were introduced to refresh the offerings so as to enhance our shoppers’ gastronomical experience. As part of our collaboration with our tenants, a 4-sided 2-storey digital screen was installed at Paragon’s atrium to enliven the shopping environment and create an avenue to strengthen our brand positioning with curated content. In addition, this also provided another platform for our tenants to better showcase their brands by engaging the shoppers’ senses via various animated formats.
As part of our corporate social responsibility efforts, Paragon also played host to various events. We worked with the Latin American embassies and Raffles Design Institute to host the “Bejewelled Macaw” event in September 2018. Over the 3-week event, Paragon shoppers and tourists were treated to the sights and “sounds” of the macaw sculpture displays. Besides allowing the design school students to showcase their creativity, the art pieces were also adopted by various organisations. A total of $44,000 was raised for “The Business Times Budding Artists Fund” which nurtures talented children from underprivileged families.
At The Clementi Mall, we continue to organise events which appeal to residents from the vicinity and engage them with various community-driven activities. One such programme was the “Good Old Days” campaign which invited shoppers to relive the good old days with nostalgic games like “hopscotch” and “catching spiders”. As a refreshing take on the classics, the event also incorporated experiential technologies such as Augmented Reality (“AR”) that put a modern spin on our favourite games of the past.
The Rail Mall which we acquired in 2018 continues to evolve into a choice F&B destination with a strong and affluent residential catchment. Various initiatives were launched after our acquisition, leveraging on the natural greenery surroundings to create community-driven events such as the “Movie under the Stars”, an outdoor movie screening night. It was a hugely successful event as residents from the Fuyong and Hillview estates were invited and treated to a night of food and fun.
In Australia, Figtree Grove Shopping Centre continues its community efforts to engage the residents around the area. The bi-annual event, “Flavours of Figtree”, hosted fun and interactive activities for families with food tasting, artisanal food making and gardening workshops for the kids.
The Manager’s proactive asset management and forward leasing strategy contributed to the sustained performance of the assets. Paragon was recognised by Singapore Retailers Association for “Best Efforts in Centre Management (Shopping Centre)” for 5 times including the latest award in 2019.
The assets continue to attract high visitorship during the year; 19.0 million for Paragon, 31.6 million for The Clementi Mall and 4.6 million for Figtree Grove Shopping Centre. Tenant sales at Paragon grew by 2.2% to S$708 million. As for The Clementi Mall, tenant sales was S$237 million, higher by 3.0% compared to last year. Figtree Grove Shopping Centre recorded tenant sales of A$187 million. The committed occupancy for our portfolio of properties remains high at 99.1%.
The Manager’s key strategy is to strive for sustainable ﬁnancial returns to our Unitholders by delivering a trusted and widely recognised brand of properties in Singapore and Australia. We will continue to work in close collaboration with our tenants to enhance the retail experience for our shoppers to keep our assets relevant in the evolving retail environment.
In April 2019, SPH REIT introduced a new shopping concept at level 3 of Paragon which houses more than 20 fashion, lifestyle and F&B tenants. This shopping concept offers open store design for seamless interactions across brands, merchandise and shoppers. This is another testament of SPH REIT’s approach to drive long-term value of its properties to deliver regular and stable distributions to Unitholders.
Year on year, NPI increased by 8.3%. SPH REIT’s aggregate DPU of 5.60 cents is 1.1% higher compared to FY2018.
In line with SPH REIT’s prudent capital management strategy, we maintained a healthy balance sheet with a gearing of about 27.5% as at 31 August 2019. The debt proﬁle for the total borrowings of S$1.1 billion is well staggered with a weighted average term to maturity of 2.5 years at an average cost of debt of 2.91% per annum. About 65% of the loan is on a ﬁxed rate basis. SPH REIT hedges its exposure to foreign currency by using foreign currency denominated borrowing and cross currency swaps, where appropriate.
As at 31 August 2019, the valuation of SPH REIT’s Singapore portfolio recorded an increase of S$37.5 million to approximately S$3.4 billion whilst valuation of the newly acquired Australian asset, Figtree Grove Shopping Centre remains unchanged.
The industry continues to face headwinds as growth in retail trade has slowed in recent years. Retailers are adapting to the evolving retail environment and embracing the structural changes in the consumer trend towards online purchasing.
Both traditional physical store and online retailers recognise the need to create an omnichannel platform to better engage with their customers. In the recent years, we saw more online retailers taking up physical store space so that their customers can have a better “touch and feel” of their products. Conversely, traditional physical store retailers have also invested in online platform to have a wider reach to increase their market share. We will continue to build on the strong partnerships established with our tenants to embrace the challenges in the fast-changing retail environment. We remain committed to strengthening the value of our assets through the pursuit of asset enhancement opportunities.
We will also remain focused on our strategy of active capital management to achieve an optimal capital structure so as to stay nimble for acquisitions and asset enhancement initiatives.
We believe SPH REIT’s portfolio of properties and their strategic locations are well-positioned and underpin our long-term sustainability.
On behalf of the Board, we would like to thank Mr Tony Mallek, who has retired from the Board on 30 November 2018, for his invaluable contributions and unstinting support since the IPO of SPH REIT in 2013.
We would also like to welcome Mr Chua Hwee Song to the Board. Mr Chua was appointed as a non-independent non-executive director to the Board with effect from 30 November 2018. He is also a member of the Nominating and Remuneration Committee. Mr Chua brings with him a wealth of experience.
Our sincere gratitude to our Board members, management team and staff for their dedication and commitment in the past year. Finally, on behalf of the Board and management, we would like to express our appreciation to our Unitholders, business partners, tenants and shoppers for their continued and unwavering support. We look forward to continued success and sustained performance in the coming year ahead.