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SPH: A REIT investment.

Tuesday, May 28, 2013

It was almost a year ago when I mentioned in a blog post that investing in SPH could be better than investing in a retail S-REIT. Then, in March this year, news that SPH could establish a REIT sent its share price rocketing. Yesterday, more details were released and we could see a SPH sponsored REIT by July 2013.

From what is available in the news, SPH will hold 70% of the REIT. This is good news for the future REIT unit holders because a sponsor with a big share of units is more likely to have its interests aligned with those of smaller unit holders.

So, how will SPH shareholders benefit from this? The most obvious benefit is a special dividend of 18c per share, post IPO. A longer lasting benefit is ownership of an SPH with an even stronger balance sheet with NAV increasing and net gearing reducing, both significantly.

In terms of income, post IPO, SPH will receive a 70% share of income distributions from the proposed REIT and will also collect a fee as the manager of the REIT.

For me, as a shareholder, apart from doing nothing and collecting dividends which is pretty much what I have been doing for so many years, I will also look at possibly making an application at the IPO of the REIT.

I like the assets (i.e. Paragon and Clementi Mall). I like the sponsor. I like how the sponsor will retain a 70% stake in the REIT. Next, I will need to know the estimated distribution yield and gearing. If they compare favourably to established retail S-REITs, then, I will be making a beeline for the nearest ATM.

The last I checked, the distribution yield of established retail S-REITs ranges from 4.5% for CMT to 5.2% for FraserCT. Gearing ranges from 30.5% for Starhill Global to 40.9% for Mapletree Commercial.

So, if SPH REIT were to offer a distribution yield closer to 6% and with a gearing closer to 30%, Mr. Market should respond more favourably.

It seems that boring SPH has become a more exciting investment.

Related post:
SPH: Better investment than retail S-REITs.

17 comments:

AK71 said...

Singapore Press Holdings rose the most in almost two months after it said it will pay a one-time dividend from its property trust listing.

The stock climbed 1.8% to $4.47 at the close in Singapore trading, its biggest gain since April 3. The company said yesterday it plans to raise about $540 million from the initial share sale of a real estate investment trust that will include Paragon and the Clementi Mall in the island state’s western suburb.

The REIT is expected to list in early July, Chief Financial Officer Tony Mallek said in a briefing yesterday. The trust will buy Paragon and Clementi Mall for $3.07 billion, and the company will pay a dividend of 18 Singapore cents, Singapore Press said.


Bloomberg.

Garfield75 said...

Ak,

My task is to summarize the shareholders circular for my boss... It is good financial engineering to retain the freehold property and only lease out 99 yrs to the REIT. But I don't like the income support concept...it means that sph is desperate to pump an unstabilsed asset into the REIT.

AK71 said...

Hi Garfield,

Your boss? You are an analyst?

Is it OK for you to share your summary here with us here?

Can cut and paste? ;p

Garfield75 said...

Will share the key points, I just got those info from straits times, will share more once I get to finish reading the prospectus...haha ECA for my boss lah... Cannot say no ;)

AK71 said...

Hi Garfield,

Sounds like your are your boss' right hand man! It means you are indispensable. Always a good thing. ;)

OK, looking forward to the result of your ECA soon. ;p

seefei said...

Clementi Mall will face stiff competition from the malls in Jirong Central like Westgate which will open in June. CM is a convenient mall and not a destination mall like Jurong Point. So CM is the weak link in this REIT and SPH is not a good mall developer if the he price it pays for Clementi Mall can be used as a yardstick. SPH overpaid to thtiming of 30%. If it is a commercial property firm, it's investment officer probably had been fired.

AK71 said...

Hi seefei,

I had the impression that the neighbourhood malls are all doing very well. No?

Anyway, I will wait for more news regarding the proposed REIT. I need more information before deciding whether to go for the IPO. :)

For now, I believe that this development benefits me as a shareholder of SPH. ;)

Unknown said...

it reminds me Asiaone IPO in dotcom era, 60c listed, 30c delisted by SPH. Lost half of my investment.

Unknown said...

Remind me of AsiaOne listing during dotcom era. 60c listed, 30c delisted by SPH. Lost half of my investment.

AK71 said...

Hi Unknown,

Yikes! Half? :(

Well, I don't think spinning off Paragon and Clementi Mall into a REIT will have the same effect. In fact, this exercise will improve and unlock value for SPH shareholders. So, don't let this remind you of AsiaOne. ;)

seefei said...

SPH has been lagging the index until this announcement of injecting CM & P into a reit. This development is definitely not negative for SPH shareholders as can be seen from the shareholders.

But further down the road, if the sponsor is getting lands or property at 30% premium to others, then it is not a very good sponsor. SPH record in buying/bidding for property is always overbid excessively as can be seen from Paragon & CM bids.

This type of cowboy behaviour need a longer digestion times and a robust property market to support. If it is SPH own money and corporate consumption then i have nothing to say. But i dont think i like this type of behaviour in a REIT sponsor.

If you are existing holder of SPH, then well and good. But dont try chasing this stock because of the aura of it being a REIT sponsor. SPH just dont have the Liew/Kwek/Ng blood running in its corporate vein.

AK71 said...

Hi seefei,

You have made some good points. Overpaying for anything is not a good idea and overpaying by a lot is definitely not. :)

The last time I added to my long position in SPH was at $3.55, iirc. I cannot even remember when was that. ;p

No fear of me adding more at current prices. ;)

AK71 said...

See: SPH REIT analysis by Garfield75.

Unknown said...

don't understand why, i use my google acct to login and leave my comment, but somehow my ID always shows as Unknown..

AK71 said...

Hi Unknown,

Certainly, this is happening because of reasons unknown to me as well. ;p

AK71 said...

Singapore Press Holdings (SPH) shareholders gave an emphatic green light on Tuesday for the media group to put its retail malls into a real estate investment trust (REIT), according to the online version of the Straits Times.

Shareholders voted overwhelmingly in favour of the proposed deal at an extraordinary general meeting, with 99.79% of those present and voting, in favour.

SPH chairman Lee Boon Yang reportedly said the transaction will offer shareholders "the best of both worlds", as SPH is set to retain a 70% stake in the Reit post-listing. This will allow SPH shareholders to continue to benefit from the group's majority ownership of these quality properties through new revenue streams.

Source: The EDGE, 18 June 2013.

AK71 said...

BUY SPH. TP: S$4.95.

DPU could be maintained despite dilution in EPS.

Due to the 30% dilution in property sector, we expect EPS to be diluted by 2cents/share.

But the cash proceeds from the REIT spinoff could give SPH ample headroom to raise payout ratio in order to maintain current 24 cents/share dividends track record in the short to medium term.

Going forward, we do not think that SPH will sit on the cash pile and do nothing at all.

Some meaningful investments could be made following the restructuring that can offset the dilution effect in the long term.

Valuation and recommendation. We lower our EPS forecast for FY14/15 due to the dilution effect but maintain our DPS forecast of
24cents/share in the next three years.

The dividends yield of 9.3/5.3/5.3% for FY13/14/15F looks quite attractive at current yield
compression environment.

Source:
http://research.maybank-ib.com/pdf/document/SPH_REIT_290513_4379.pdf

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