SPH Reit

Uobkayhian on 22 Jul 2013

Executive Summary
SPH REIT is a Singapore-based REIT with an initial portfolio of two retail  properties, Paragon, an upscale mall on Orchard Road, and Clementi Mall, a suburban mall in Clementi. SPH REIT’s mandate is to invest primarily in retail  properties in Asia Pacific.

Offering yields of 5.6-5.8%. SPH REIT offers distribution yields of 5.6% in  2H13 and 5.8% in 2014. This is at a 20-40bp premium to the yields for  CapitaMall Trust and Fraser Centrepoint Trust, and a 10-20bp premium to  the yields for the retail S-REIT sector. Excluding income support, the forecast  yield for 2HFY13 is 5.4% and 5.6% for FY14. 

Exposure to high-quality retail portfolio in Orchard and Clementi. The  initial portfolio consists of two high-quality retail assets, Paragon, an upscale  mall on Orchard Road and Clementi Mall, a suburban mall in Clementi. Paragon is a premier upscale retail mall and medical suite/office property located in the heart of Orchard Road. Clementi Mall is a mid-market suburban mall located in the centre of Clementi town, an established residential estate in the west of Singapore.

Strong sponsor in Singapore Press Holdings (SPH), Singapore’s leading media organisation with a market capitalisation of S$6.7b. SPH’s commitment to retain a high 70% stake in SPH REIT post-listing ensures that its interests are closely aligned with that of unitholders.

Income support for under-rented Clementi Mall. Clementi Mall’s rentals are under-rented with current rentals 13% below comparable malls, such as Tampines Mall and Junction 8. SPH REIT has secured income support at Clementi Mall of up to S$20m over five years to support Clementi Mall’s net property income (NPI) at S$31m per year.

Institutional tranche 42x subscribed. The institutional tranche was 42x subscribed ahead of the listing. Cornerstone investors including Great Eastern Life, Hong Leong Asset Management, Morgan Stanley Investment Management, Newton Investment Management and Norges Bank have committed to 10% of the units in issue. In addition, NTUC Co-operatives, under the National Trade Union Congress, has also committed to 5.4% of the total units in issue.

Low all-in financing cost of 2.35% for debt and a low initial gearing of 27% as SPH REIT has adopted a conservative capital structure. This gives SPH REIT a debt headroom of S$370m before reaching a gearing of 35% Long-term growth potential through acquisitions with a Right of First Refusal (ROFR) over the sponsor’s pipeline asset at Seletar Mall. Other longterm growth opportunities include decanting anchor tenant space at Paragon to introduce more fashion or high-end retail outlets.

Valuation range. SPH REIT offers a forward yield of 5.8% in 2014.  Comparable retail S-REITs, such as CapitaMall Trust and Frasers Centrepoint Trust, are trading at forward yields of 5.4% and 5.5% respectively. At 5.4% and 5.5% forward yields, SPH REIT would be trading at S$0.97 and S$0.95 respectively.