IPO Watch: SPH’s Property REIT?

Ready to part with your $2 administrative fee again? The initial public offering pipeline of the Singapore Exchange looks like it is going to be set ablaze again even after that mega $1.7 billion Mapletree Greater China Commercial Trust. This time, news from Singapore Press Holdings (SPH) lit up the eyes of must-bid-for-all-IPOs investors.

In a filing with the Singapore Exchange, the republic’s largest publishing company, SPH said that it was considering the listing of its property assets in a real estate investment trust. On the Monday when trade resumed, SPH’s share price jumped to a high of $4.33 before settling at $4.31 (+3.4 percent) when trading ended for the day.

The SPH REIT
SPH currently has in its property stable, two operating retail malls: Paragon and Clementi Mall, a 43-storey upmarket residential condominium. SPH also has, in its development pipeline, an additional retail mall. The Seletar Mall is slated for completion by end 2014.

Although details regarding the planned S-REIT are not available at the moment, both Paragon and Clementi Mall are likely to be assets in its initial portfolio. Based on the the independent valuation of the two properties in *August 2012, I have drawn up a table of the possible divestment gains from the spin-off.

Paragon – SPH’s Crown Jewel
Paragon, situated along Orchard Road is SPH’s crowning jewel having maintained 100 percent occupancy for its retail, medical and office space. The mall offers over 200 stores including a diverse mix of renowned international luxury brands.

Photo credit: SPH, front facade of Paragon

As part of continuing efforts to enhance the shopping experience of shoppers, Paragon carried out refurbishments to its external walkways as well as landscape areas in 2012.

In FY12, Paragon contributed about $149 million in revenue to SPH. Rental income from Paragon increased by $4.6 million (+3.1 percent) as a result of higher rental rates achieved. Overall, the “iconic” shopping mall contributed about $64.3 million to SPH’s bottom lines.

Clementi Mall – The Contemporary Mall
Clementi Mall commenced operations in May 2011 with 100 percent occupancy. Clementi Mall is positioned as a contemporary and mid-market mall. The mall enjoys a good catchment area from Holland Village, Bukit Timah and West Coast, where key tertiary institutions are located.

Photo credit: SPH, Clementi mall

SPH currently owns 60 percent of the mall with the remaining 40 percent taken by NTUC and its associates.

For FY12, Clementi Mall recorded an increase in rental income of $18.6 million (+100.6 percent) after being in operations for a full year. However, interest from debt pared gains as Clementi Mall remained a loss-making mall for SPH.

Respectable Yield Expected
With these two malls possibly in the new S-REIT, analysts put the yield of said REIT at above 5 percent, a somewhat respectable amount when compared amongst other S-REITs.

Market watchers also note that while the Seletar Mall could ultimately be divested to the S-REIT, a readily available pipeline of malls for the S-REIT to tap into appears to be limited for the time being. As DBS Vickers noted in its research note, this problem could be “addressed should management be able to tie up with third party asset owners or further development of new sites.”

A word of caution though, if you are interested in investing in SPH for the possible special dividends from this divestment or investing in the S-REIT, do note that all this has the possibility of not materialising in the first place. As noted by DBS Vickers, the establishment of this S-REIT hinges on several factors such as market conditions, regulatory approvals and the like.
You could say then what is the purpose of this article? My favourite mantra comes to the fore, “nothing ventured, nothing gained”.