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Some people are surprised to learn that I am not all that interested in SPH REIT. Instead, I am more interested in SPH. Why is this so?
I do not think SPH REIT particularly attractive with an estimated distribution yield of about 5.6% although a gearing level of about 30% is comfortable. A yield of about 6% without a higher gearing level would be what is needed to attract me. Otherwise, I think I am better off increasing my investment in SPH.
Simplistically, if I could get a 5% dividend yield by being a shareholder of SPH which will also see its gearing level drop to almost zero with a bigger cash hoard after setting up SPH REIT, why would I still be interested in the REIT?
OK, before I go on, I must say that I am speaking from the point of view of someone who already has a substantial exposure to S-REITs. For someone who has no exposure to S-REITs yet, SPH REIT's IPO does seem like a decent enough proposition.
Some quick calculations show that SPH will see a slight decline in its income by having its ownership of the two malls diluted. So, logically, we would see a decline in its annual dividends paid to shareholders as well, everything else remaining equal. Proportionally, instead of 24c DPS, we could see 21c DPS in future.
In the recent market weakness, I bought more shares of SPH. Assuming an average price of $4.20 a share, a 21c dividend represents a 5% yield. On top of this, the management has promised an 18c special dividend because of the REIT's IPO. This is an additional 4.28% return.
My purchases last month were the highest prices I have ever paid for SPH's stock. Prior purchases were made at between $2.86 and $3.55 a share. However, believing that the management has unlocked value for SPH shareholders in this latest exercise, I am willing to pay reasonably higher prices for the company's stock.
Technically, a pull back could see SPH's share price retreating to test support at $4.22 while any further rise in price could meet with resistance at $4.39. Fellow SPH shareholders want to approach this cautiously since the stock is spotting a downtrend and we don't want to be caught buying at resistance.
Related posts:
1. Which stocks have I been accumulating in June 2013?
2. SPH: A REIT investment.
3. SPH: Better investment than retail S-REITs?
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