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SPH: Better investment than retail S-REITs?

Tuesday, June 19, 2012

SPH is still my largest investment in a Singapore blue chip and it is an important part of my high yield portfolio. CIMB now suggests that investing in SPH is better than investing in retail S-REITs. It would be a happy coincidence for me if CIMB should be right as my only exposure to retail S-REITs is a small long position in Suntec REIT, much smaller than my investment in SPH.

Singapore Press Holdings is becoming increasingly like a retail real estate investment trust (REIT), CIMB Research said, noting its growing retail property arm and stable media business, as well as typical payouts of more than 90%...

The broker also said SPH is a cheaper alternative for investors seeking exposure to retail Singapore REITS after the stock’s underperformance, offering yields of 6.4% versus an average of 6.1% for retail Singapore REITs...

CIMB said revenue compound annual growth rate for SPH’s “gem asset”, Paragon shopping mall in Singapore, stood at 8.3% over 2006-2011, outstripping growth for comparable assets under retail Singapore REITs.

Related post:
SPH: Interim dividend of 7c per share.


B said...


No need to mention, I'm sure you got SPH at an incredibly yummy price :D

AK71 said...

Hi B,

I bought into SPH at different prices over the last few years. If I remember correctly, prices ranged from $2.8+ to $3.6+. Not incredibly yummy. ;)

The first blue chip I invested in for income is actually ST Engineering and till today, I am still holding on to the first lot I bought at $1.55 per share. ;p

LCF said...

AK, is retail S-REITs not defensive enough or is the yield not attractive enough, relatively? Since you mentioned you only have a small long position.

AK71 said...


I like retail S-REITs as I think they are relatively resilient. We also need more retail space in Singapore. The malls are mostly too crowded.

However, I feel that retail S-REITs are somewhat pricey now and would wait a bit more. :)

Art Collector in SG said...

Hi AK, what do you think of the SGX/CDP Security Borrowing & Lending program? It's said to be 4% return to you. If one is holding REITs for dividend, isn't it better to lend to CDP to get more return?


AK71 said...

Hi Tony,

I would imagine that if you were to lend your stocks to someone, the benefits and disbenefits during the period of loan accrue to them, not you.

Anyway, best to check with SGX on this one. :)

Ah John said...

Hi AK, didn't see you mention First REIT again. With 8.8% div yield and 16% gearing, and hospital property, a good buy?

AK71 said...

Hi Ah John,

I like to look at First REIT's distribution yield using a more normalised DPU of 1.6c per quarter. This gives us an annualised yield of only 7.27% with a unit price of 88c.

Why 1.6c? The higher DPU of late is due to proceeds from the sale of its Adam Road property. It is not sustainable.

AK71 said...

Singapore Press Holdings said it posted earnings of $365.5 million for the year ended 31 August 2012 (FY 2012). This was $23 million or 5.9% lower compared the previous financial year (FY 2011).

Group recurring earnings of $410.2 million was slightly higher by $1.2 million or 0.3% compared to FY 2011, as growth in the property and exhibitions businesses cushioned the lower profits from the newspaper and magazine segment. Investment income was impacted by volatility in the financial markets and fell by $17.8 million (35.3%) to $32.6 million.

Full-year group operating revenue was $1.27 billion, $21.9 million or 1.8% higher compared to FY 2011. Revenue for the Group’s Newspaper and Magazine business of $1 billion was marginally lower by $10.5 million or 1% compared to FY 2011. Print advertisement revenue was $769.4 million, slightly down by $5.3 million or 0.7% compared to the previous year. Circulation revenue declined by $4.3 million or 2.1% to $202.9 million.

Rental income for the group grew by $23.5 million or 14.0% to $191.4 million. The Clementi Mall recorded an increase in rental income of $18.6 million on the back of a full year’s operations. Paragon’s rental income increased by $4.6 million as a result of higher rental rates achieved.

Operating revenue from the group’s other businesses improved by $8.9 million or 12.8% to $78.7 million, with increased contribution from the exhibitions business.

The EDGE, 12 Oct 12.

AK71 said...

We continue to see SPH growing rental income as a key buffer for the group’s softening advertising and circulation revenue. Property rental now accounts for 15% and 21.7% of the group’s revenue and PBT in 1Q, respectively, up from 14% and 19.7% a year ago. This should be further increased with the expected completion of Seletar Mall at the end of 2014.

Our sum-of-parts based TP remains at S$4.01. Notwithstanding a muted outlook, we expect the share price to be supported by a healthy yield of 5.8%, based on our 24 Scts DPS assumption, similar to FY12. Downside risks to our forecast would be a sharp deterioration of economic sentiment, affecting the group’s core advertising revenue.

DBS Vickers

AK71 said...

Singapore media and property firm SPH said it is looking into establishing a real estate investment trust to be listed on the mainboard of Singapore Exchange.

Mr. Market likes this. Shares of SPH hit a high of $4.33 this morning. :)

AK71 said...

Positives of a REIT listing include cash inflow, asset value realization. The listing of SPH’s property assets (we assume Paragon and Clementi Mall) into a REIT has its positives:

(1) potential gross cash inflow of SGD1.5bn (assuming SPH keeps 50% cash and remainder as REIT shares),

(2) upside in gross asset value realization of SGD1.3bn (Paragon and Clementi are valued at SGD1.75bn on SPH’s books versus market value of SGD3.03bn),

(3) higher income in the form of dividends as a REIT is tax exempt with a minimum earnings payout of 90%.

Positive for investors given retail REITs current 4.5-5.0% yield. We assumed

(1) a listing of Paragon and Clementi Mall,

(2) 35% debt ratio,

(3) NPI of SGD140m,

(4) finance cost at 2% of debt

to derive a dividend yield of 5.5%, which is more attractive than the current retail REIT sector’s 4.5-5.0%.


AK71 said...

Singapore Press Holdings said it has entered into a sale and purchase agreement to buy online car portal sgCarMart for up to $60 million.

The acquisition deal includes sgCarMart's online vehicle classifieds site, car auction platform, online marketing site as well as its service provider for car loans, insurance and settlement services.

SPH, which owns online car portal STCars, will pay for the acquisition wholly in cash.

The EDGE, 1 April 2013.

AK71 said...

Singapore Press Holdings Ltd (SPH) said on Monday it plans to list two shopping malls valued at S$3.07 billion ($2.43 billion) via a real estate investment trust (REIT) listing scheduled for July.

SPH plans to hold 70 percent of the units in SPH REIT, whose assets are the Paragon shopping mall in the city-state's prime Orchard shopping district and Clement Mall in a western suburb.

The Singapore publishing and property firm plans to distribute 18 Singapore cents a share as a special dividend to shareholders after the listing, it said in a statement.


AK71 said...

Singapore Press Holdings said it plans to raise about $540 million from the initial share sale of a property trust.

The REIT will have a market value of $2.2 billion, and will hold $900 million of debt, the company said in its presentation slides.

Paragon, located along Orchard Road, and Clementi Mall are “fully leased,” Singapore Press said earlier this year.

In the year through August 2012, property accounted for 26% of SPH’s operating income of $466.9 million, while newspapers and magazines accounted for almost 71%, data compiled by Bloomberg show.


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