ANNUAL REPORT 2017 VISION SPH REIT aims to be a premier retail real CORPORATE estate investment trust in Singapore and Asia Pacific, with a portfolio of quality PROFILE income-producing retail properties. SPH REIT is a Singapore-based Real Estate Investment Trust (“REIT”) established principally to invest, directly MISSION or indirectly, in a portfolio of income-producing real estate which is used primarily for retail purposes in To be the landlord of choice for our tenants Asia-Pacific, as well as real estate related assets. and shoppers and be committed in our delivery of quality products and services. To SPH REIT was listed on the Singapore Exchange provide Unitholders of SPH REIT with regular Securities Trading Limited (“SGX-ST”) on 24 July and stable distributions, and sustainable 2013 and is sponsored by Singapore Press Holdings long-term growth in distribution per unit and Limited (“SPHL” or the “Sponsor”), Asia’s leading media organisation, with publications across multiple net asset value per unit, while maintaining languages and platforms. an appropriate capital structure. CONTENTS 02 Financial Highlights 07 Statement by Chairman and CEO 10 Year In Review 12 Trust Structure 13 Organisation Structure 14 Board of Directors 19 Management Team 21 Property Management Team 24 Operations Review 32 Financial Review 38 Unit Price Performance 40 Portfolio Overview 48 Market Overview 54 Corporate Social Responsibility 58 Investor Relations 60 Risk Management 63 Corporate Governance 81 Financial Statements 127 Statistics of Unitholdings 129 Interested Person Transactions 130 Notice of Annual General Meeting Proxy Form Corporate Directory INUNISON | INSYNC 1. As at 31 August 2017, SPH REIT comprises with a total 223,097 sq ft of medical suite/ two high quality and well located office NLA (“Paragon Medical”); and commercial properties in Singapore totalling 910,395 sq ft Net Lettable Area (“NLA”) with THE CleMentI Mall, a mid-market an aggregate appraised value of S$3.278 suburban mall located in the centre of billion. The portfolio consists of: Clementi town, an established residential estate in the west of Singapore. The retail PARAGON, a premier upscale retail mall mall, which also houses a public library, is and medical suite/office property located part of an integrated mixed-use development in the heart of Orchard Road, Singapore’s that includes Housing & Development most famous shopping and tourist precinct. Board (“HDB”) residential blocks and a bus Paragon consists of a six-storey retail podium interchange. The property is connected to and one basement level with 492,267 sq ft the Clementi Mass Rapid Transit (“MRT”) of retail NLA (“Paragon Mall”) with a station. The Clementi Mall consists of a 14-storey tower and another three-storey five-storey retail podium and one basement tower sitting on top of the retail podium level with 195,031 sq ft of retail NLA. SPH REIT is managed by SPH REIT Management Pte. Ltd. (the “Manager”), a wholly-owned subsidiary of SPHL. 2. SPH REIT ANNUAL REPORT 2017 FINANCIAL HIGHLIGHTS 2017 2016 Change For the financial year ended 31 August S$ million S$ million % Gross Revenue 212.8 209.6 1.5 Net Property Income 168.1 160.9 4.5 Income Available for Distribution 141.2 141.1 0.1 Distribution per Unit (cents) 5.53 5.50 0.5 2017 2016 Change As at 31 August S$ million S$ million % Total Assets 3,346.7 3,311.3 1.1 Total Liabilities 925.6 922.7 0.3 Borrowings 847.4 845.9 0.2 Net Assets Attributable to Unitholders 2,421.1 2,388.5 1.4 Number of Units in Issue (million) 2,556.1 2,546.7 0.4 Net Asset Value per Unit (S$) 0.95 0.94 1.1 Financial Ratios 2017 2016 Annualised Distribution Yield (%) • Based on closing price1 5.53 5.73 Gearing Ratio (%) 25.4 25.7 Interest Cover Ratio (times) 6.1 6.0 Average All-in-Cost of Debt (% per annum) 2.82 2.82 Average Term to Maturity for Debt (years) 2.1 3.1 Note: (1) Based on closing price of S$1.00 per unit on 31 August 2017 (31 August 2016: S$0.96). INUNISON | INSYNC 3. 5.53 CENTS DISTRIBUTION PER UNIT ▲ Up 0.5% Compared To 2016 5.53% DISTRIBUTION YIELD Based On Closing Price Of S$1.00 S$16 8 .1 On 31 August 2017 MILLION NET PROPERTY INCOME ▲ Up 4.5% Compared To 2016 25.4% GEARING Strong Balance Sheet S$3.278 BILLION VALUATION OF 100.0% INVESTMENT PROPERTIES COMMITTED OCCUPANCY ▲ Up 1.5% Compared To 31 August 2016 Solid Track Record DRIVEN BY VISION To achieve our vision as a premier retail real estate investment trust, we will continually strengthen the quality and positioning of our properties. We remain focused on creating differentiated and engaging retail experiences to stay relevant and keep abreast of the fast-changing and competitive retail landscape. 6. SPH REIT ANNUAL REPORT 2017 INUNISON | INSYNC 7. STATEMENT BY CHAIRMAN AND CEO “SPH REIT’s resilience is underpinned by the well established brand positioning of the assets in the portfolio.” Ms Susan Leng Mee Yin Dr Leong Horn Kee DEAR UNITHOLDERS, The aggregate distribution per unit (“DPU”) Committed for FY2017 of 5.53 cents was 0.5% higher Occupancy On behalf of the Board of Directors of SPH than last year and translated to a distribution REIT Management Pte. Ltd., the Manager of yield of 5.53% based on the closing price % SPH REIT (the “Manager”), we are pleased of S$1.00 as at 31 August 2017. 100.0 to present you with the SPH REIT’s Annual Report for the period from 1 September Distribution 2016 to 31 August 2017 (“FY2017”). MOTIVATED BY MISSION Per Unit The Manager has strived for long-term DRIVEN BY VISION sustainability of financial returns of the 5.53¢ properties so as to provide Unitholders with SPH REIT has continued to maintain its regular and stable distributions. good track record on several fronts since Gearing its Initial Public Offering in July 2013. SPH REIT’s resilience is underpinned by Through proactive leasing, our properties the well established brand positioning of % maintained its track record of 100% the assets in the portfolio which serves as a 25.4 committed occupancy. For expiries in strong foundation to meet the fast-changing FY2017, tenant retention rate of 86% was consumer expectations and consumption achieved demonstrating the strong landlord behavior. Our focus continues on improving and tenant partnership and attest to the and fine tuning the tenancy mix, creating quality of our assets. Notwithstanding the differentiated and engaging activities to uncertain retail environment, we delivered strengthen our malls. Working in close consistent distribution growth for Unitholders, collaboration with our tenants, our mission on the back of steady performance of is to elevate the shopping experience to our properties. delight our shoppers. Gross revenue grew by S$3.2 million (1.5%) At Paragon during the year, Nike trippled to S$212.8 million and with proactive its store size to about 5,000 sq ft. Emporio management of expenditure, we turned in Armani’s flagship store was added to a net property income (“NPI”) of S$168.1 Paragon’s suite of international brands. million for FY2017, which was S$7.2 million Greyhound Café, a much sought after name (4.5%) higher than last year. opened its first store in Singapore. Marks & Spencer and Lalique expanded their Total income available for distribution to presence to introduce a wider range of Unitholders was S$141.2 million for FY2017. their products to our shoppers. 8. SPH REIT ANNUAL REPORT 2017 STATEMENT BY CHAIRMAN AND CEO Shoppers were treated to the big brush by Air Handling Units at Paragon, seek further opportunities of asset water calligraphy by Japanese Ms which were due for replacement. This enhancement initiatives to strengthen Shoko Kanazawa and concert pianist multi-phased project is scheduled the value of our assets. from Singapore Mr Azariah Tan during to be completed by 2018 and will the celebration of 50th Anniversary of yield approximately 7,000 sq ft The well-established positioning Singapore-Japan diplomatic relations. of additional lettable area and of our assets and their strategic During the three week Switzerland- generate S$0.9 million incremental locations would underpin the long- Singapore national day celebration, gross rental revenue per year. The term sustainability of SPH REIT. shoppers experienced a unique new equipment would also improve alpine golf and ski chair challenge. operational efficiencies. During the year, Paragon commenced the second ACKNOWLEDGEMENTS The Clementi Mall, a suburban mall phase of the project and progress is in a well-established residential well on schedule. On behalf of the Board, we would estate, welcomed an exciting array like to thank Mr Alan Chan, who has of new F&B offerings. The selection In line with SPH REIT’s prudent retired from the Board on 1 August and number of food kiosks at the capital management strategy, we 2017, for his invaluable contributions basement were widened with a fresh maintained our strong balance sheet and unstinting support since the IPO new look. In addition to these, new- with stable gearing rate of 25.4% as at of SPH REIT in 2013. to-market dine-in restaurants were also 31 August 2017. The debt profile for introduced to provide fresh options the total borrowing of S$850 million We would also like to welcome Mr to our shoppers. is well staggered with a weighted Ng Yat Chung to the Board. Mr Ng average term to maturity of 2.1 was appointed as a non-independent To engage the local community, an years at an average cost of 2.82% non-executive director to the Board array of activities were held.