Share price: SGD4.26
Target price: SGD4.52 (from SGD4.95 )
Another Step Closer to REIT IPO
SPH REIT filed preliminary prospectus with MAS yesterday after market closed. Despite the recent market uncertainty, it seems to us that SPH is getting closer to a successful spinoff. We maintain our view that SPH REIT can take off soon (probably in August) and we believe that such a spinoff could benefit SPH shareholders in the long term. However, due to the rising interest rates of Singapore government bonds, we adjust our risk free rate assumption in our DCF valuation to 3% from 1.3% before. Maintain BUY but lower TP to SGD4.52.
Reasonable pricing. The listing will hope to raise between $476 million and $504 million, with an offer of 308.884m units to public and 251m units to cornerstone investors, at between SGD85-90cents/unit. The offer price represents a 0.9% premium to NAV per share. FY13 DPU yield is expected to be 5.58% @90cents and 5.79% @85cents. The offer price is reasonable and comparable to peers in our view.
Conservative capital structure. SPH REIT adopts a quite conservative capital structure. The debt portion of the REIT would range from SGD850m (@90cents) and SGD975m (@85cents), which brings leverage to around 27.3 – 31.3%. SPH REIT intends to use fixed rate loans for 50% of debt. Its current average financing cost is estimated at a fairly low 2.35% p.a.
Limited free float could help a successful IPO. After the offering (without the over-allotment option exercising), SPH, NTUC and the cornerstone investors will own 72.2/5.4/10.0% of total outstanding units while free float only accounts for the remaining 12.4%. Limited free float could help a successful IPO despite the recent market uncertainty. We expect the IPO process to finish by August, slightly later than management’s original plan.
Maintain BUY but cut TP on higher risk-free rate. We believe that such a spinoff could benefit SPH shareholders in the long term. However, given the rising interest rates, we adjust our risk-free rate assumption to 3% and lower our TP to SGD4.52 accordingly. Short term downside risk for the stock is mainly the possibly lower-thanexpected 3QFY13 results which will be announced next Monday.
Publish date: 10/09/13