Monday, October 7, 2013

SPH REIT : Still fairly priced commercial paragon at best (Nomura)

Target price Remains SGD 0.94
Closing price September 27, 2013 SGD 0.98
Still fairly priced commercial paragon at best

Action: Neutral; still a fairly priced commercial paragon at best
SPHREIT has outperformed the other REITs since its listing on 24 July (- 1% vs. FSTREI’s -4%). Notwithstanding the short listing history, we suspect the current cost of debt of c.2.4% is unlikely to be sustainable in the long run. Assuming a higher cost of debt of 4%, all management fees to be paid in cash and no rental support would shave 1.4pp off SPHREIT’s FY15F yield, on our numbers. Relative to the long-term average risk-free rate of 2.9%, the potential return therefore appears to be tight if the shortterm distribution boosts were to be removed. As such, while we like the Paragon asset, it remains our view that the stock is fairly priced at best.

Catalyst: Potential acquisition in the medium term
Upon completion of the Seletar Mall at end-2014F, we believe there is potential for SPHREIT to exercise the ROFR to acquire the asset, which could add c.5% to distribution on our numbers, assuming entry yield of 5.5% and 75% debt financing at a WACC of 3.6%.

Valuation: TP unchanged at SGD0.94
Our TP of SGD0.94 remains unchanged and implies a potential total return of 1.2% (potential downside of 4.1% + FY14F yield of 5.3%). Maintain Neutral.

Source/Extract/Excerpts/来源/转贴/摘录: Nomura-Research,
Publish date: 02/10/13

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