Wednesday, July 17, 2013

SPH Reit

Short Summary:
SPH REIT is a Singapore-based real estate investment trust established principally to invest, directly or indirectly, in a portfolio of income-producing real estate which is used primarily for retail purposes in Asia-Pacific, as well as real estate-related assets. The initial portfolio of SPH REIT consists of Paragon (a premier upscale retail mall and medical suite/office property located in the heart of Orchard Road, Singapore’s most famous shopping and tourist precinct) and Clementi Mall (a mid-market suburban mall located in the centre of Clementi town, an established residential estate in the west of Singapore).

The Deal:
Offering Price: S$0.90
The Offering: 308,884,000 Shares (Include 83,982,000 Offering Shares to Singapore Public)
Cornerstone Investors: 251,000,000 Cornerstone Shares
Forecast Dividend Yield:
2013: 5.58%
2014: 5.79%
*Based on issue price of $0.90, 2,500,995,200 units after IPO.
Dividend Policy:
100% of its Specified Taxable Income from the Listing Date to 31 August 2014. Thereafter, at least 90% of Specified Taxable Income.
-Exposure to a high quality retail property portfolio anchored by Paragon, one of Singapore’s most iconic retail malls.
-Unique exposure to Singapore’s robust retail sector and strong health care services sector through Paragon Medical.
-Real estate exposure to Singapore’s premier shopping and tourist precinct, Orchard Road.
-100% committed occupancy.
-Right of first refusal to acquire The Seletar Mall, slated for completion by December 2014.
-Alignment of interest between the Sponsor and Unitholders (SPH to hold at least 70% stake in SPH REIT immediately following the IPO).
-SPH REIT is reliant on Paragon for a substantial portion of its Gross Revenue.
-The market values of the Properties may differ from their values as determined by the Independent Valuers.
-Clementi Mall which will be receiving Income Support may not achieve the same revenue once the Income Support expires.
-The Properties may require capital expenditure periodically beyond the Manager’s current estimates and SPH REIT may not be able to secure funding.
-Renovation work, repair and maintenance or physical damage to the Properties may disrupt the operations of SPH REIT and collection of rental income or otherwise result in an adverse impact on the financial condition of SPH REIT.
-SPH REIT may face increased competition from other properties.
-Any loss of major tenants or any breach by major tenants of their obligations under the lease agreements could have an adverse effect on SPH REIT.
-Epidemic diseases in Asia and elsewhere may adversely affect SPH REIT’s operations.
-Gearing of 27.40%
In my opinion, I will not be applying for the IPO given such a low yield in the 5.8% range. There are other better yielding reits around on SGX, such as Mapletree Industrial (around 7% yield currently) and Sabana (aound 8% yield currently). On a side note, comparing SPH Reit with other comparable retail reits listed in Singapore, I will say they are in the mid range yield. For investor who have a low risk appetite and wants stability, SPH Reit is the one for you, but do take note that US federal has been hinting on a possible interest rate hike next year, so reits who rely heavily on borrowings will have an impact on their distributable income.
Some useful information:
[17 Jul 2013], [6.00 p.m.] : Opening date and time for the Public Offer.
[22 Jul 2013], [12.00 noon] : Closing date and time for the Public Offer.
[23 Jul 2013]: Balloting of applications under the Public Offer, if necessary.
[24 Jul 2013], [2.00 p.m.]: Commence trading on a “ready” basis.
Rating for investment: 5/10

Disclaimer: You may use the above information as a guide, but please invest based on your own judgment.

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