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Wednesday, 17 July 2013

SPH Reit

SPH Reit launched its IPO at the top end of the book-building range of $0.90 and the placement tranche was a whopping 42x oversubscribed and i have to admit i am surprised by this 'overwhelming' demand which unfortunately depressed the yield and potential upside.

My preview post on 11 July 2013 is here and the final prospectus is here. I will not repeat what i had said in my earlier preview post but will highlight what i think will be interesting to readers. (Can someone email me the SPH REIT booth at Raffles Place if they see one?)

Issue details

Placement tranche: 224.902m Units
Public tranche: 83.982m Units
Cornerstone:  251m Units
Application closing date:  22 July 2013 12pm
Listing date: 24 July 2013 2pm
First distribution: On or before 27 Feb 2014

Forecast yield

At $0.90, SPH Reit will distribute a forecasted annualized yield of 5.58% for 2H FY2013 and 5.79% for FY2014

What i like about the REIT
  • Premier upscale retail mall at the heart of Orchard Road
  • SPH continue to hold 70%, which creates strong alignment of interest  
  • Fresh 99 year leasehold on Paragon and close to 99 years on Clementi Mall
  • Exposure to the healthcare services sector which is resilient (via Paragon)
  • Right of First Refusal on SPH's properties.
  • Leverage of 27.3%
What i don't really like
  • Paid a slight premium to NAV
  • Artificial income support by SPH to Clementi Mall
  • Starhill Global is trading around yield of 5.67% and a price to book of 0.88x (leverage 30%)
  • Capitamall is trading around 5.03% and a price to book of 1.21x (leverage 35%)
  • Frasers CT is trading around 5.6% and a price to book of 1.24x (leverage 30%)
  • Suntec is trading around 5.76% and price to book of 0.77x (leverage 36%)
Mr IPO's views

Looking at the peers' valuation, the yield seemed to be between 5% (Capitamall) to 5.7% (Suntec) and between 0.77x (Suntec) to 1.24x (Capitamall) in terms of price-to-book. I will not use the price to book as the benchmark has proved to be too wide ranging.

Assuming a yield of between 5% to 5.7%, the trading range will be between 88c and 99c. 

Don't expect any fireworks as the REIT is priced fairly. The "overwhelming" institutional demand and "over-allotment" stablization will probably lend support to SPH with slight upside potential. 

I will give it a 1 chilli rating. I would have given it a higher rating if it had been priced at 85c. Investors may be better off buying into SPH which gives the investor an exposure into both REIT and publishing. (I have not done any work on this idea though, you may want to work out your sums and tell me the results).

Happy IPOing. I will be vested via some placement shares.


Mr DutyFree said...


Thank you for your very fair reporting despite you being vested. I will still buy into SPH reit because the demand is overwhelming. Based on that I think an opening of 0.95-1.02 should be fairer and there should be strong hands.

On a side note, I just like Singapore IPO page, and I would be keen to actually stay in touch with you as a FB friend as well. I will PM u via the Singapore IPO page. I am Mr Duty Free btw.

I am vested in Kris Energy (ATM 51 lots), Moneymax (Placement 1000 lots split into 500 lots each), and SPH reit (probably ATM once the Kris Energy money) comes in.

Still thinking about OUE, any advice?

Also there has been a deluge of IPO recently and given the tampering of QE by US, funds seem to be drained out from a market that is already seeing withdrawal of funds. Does this bode badly for IPOs?

Mr. IPO said...

Thanks Mr. Dutyfree...

Very loaded. haha. your placement for 1000 lots of Moneymax is actually placement or just indication ah?

Amos T said...

I believe is indication. moneymax fy2012 results seem to be better than maxicash. Eps is also higher, shld bode well if its price is also 30cents. If they give similar dividend of $11-12 per lot then its price shld move up along with such news.

IPObaby said...

OUE or SPH...arrrghhh headache, y cant have two wives haha

Mr. IPO said...

Cannot meh? :-P spilt into 2 applications lor

Mr. IPO said...

My placement indication not successful.

Ming said...

I wouldn't put my money on SPH. The property arm is really the crown jewel and now that it's being pushed out, SPH will focus better on its core business. But with so much cash, we cannot discount the possibility that they may end up with some dud buys...which their track record doesn't say otherwise too.

Mr. IPO said...

Like overpaying for the local websites? Hahaha :)

Anonymous said...

What do you mean by artificial support for clementi mall?

Mr. IPO said...

It's in the prospectus. SPH is "topping" up the income for a period of time.

Anonymous said...

I see.. That's something new to me. Is this common though?

Anonymous said...

I don't quite understand why SPH must top up when there's 100% occupancy rate. Do you mind enlightening me?

Ming said...

According to SPH's latest comments in the media, the income support is for the interim, until revenues stabilise. Probably because Clementi Mall is only 2 yrs in operation, there could be some more flux in its tenant make-up in the near future. They want to reassure investors that SPH is here to offer stability.

Mr. IPO said...

Another way to do it is for sponsors to waive their rights to the distributions and give it to other unit holders like in Religare's IPO.

Ming - tks for helping to answer.

Unknown said...

Hi IPO, can I apply placement and public at same time?

Mr. IPO said...

For SPH REIT and OUE HT yes.

Anonymous said...

Hi mr ipo. Just started following. Good call on krisenergy btw.

When will result of allocation be known for sph? Also, what price would you suggest queuing at once it is listed?

Mr. IPO said...

1. This evening. Check back my blog for the posting.
2. You have to decide yourself.

Anonymous said...

I am not allocated any lot, but intend to buy when listed. I've never bought any shares before during the opening day, any suggestion what i should do to definitely purchase? Set buy in at 0.95 to be sure?

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