SPH Reit

CIMB Research, June 30

USING DDM-based (discount rate of 7.7 per cent), we arrive at a target price of S$1.06, translating into implied CY2014 yields of 5.4 per cent for unitholders. We deem this fair against listed peers such as CMT, FCT and MCT, which trade at CY2014 yields of about 5.6-5.7 per cent.

SPH Reit is a retail Reit with two quality and well-located assets in Singapore valued at a total of S$3.2 billion. They are: 1) Paragon, a premier upscale mall and medical suites/office property in the heart of Orchard Road, and 2) Clementi Mall, a mid-market suburban mall located in the centre of Clementi town.

We believe that the portfolio offers a unique combination of prime Orchard Road and stable suburban retail, and an alternative play on rising medical tourism in Singapore.

We expect Paragon to benefit from the government's positioning of Singapore as a top luxury lifestyle destination and from the nation's expanding medical tourism. Meanwhile, Clementi Mall offers stable suburban retail exposure, further enhanced by a five-year income support.

With an asset leverage of 26.9 per cent, SPH Reit has a debt headroom of about S$415 million to 40 per cent asset leverage for acquisitions. Key pipeline asset includes The Seletar Mall, which is slated for completion by end-2014.

Given its good mix of stability and room for growth, we initiate coverage on SPH Reit with an "add" rating and target price of S$1.06.

ADD