SPH REIT – AmFraser

Defensive attributes priced in

SPH REIT is a Singapore‐based real estate investment trust established principally to invest in a portfolio of income‐producing real estate which is used primarily for retail purposes in Asia‐Pacific. SPH REIT's portfolio consists of two retail properties, namely Paragon and the Clementi Mall. Distributions to Unitholders are on a quarterly basis.

Our investment thesis for SPH REIT is centred on its defensive growth prospects. We like SPH REIT for the quality of its retail assets, strong sponsor backing as well as its exposure to the healthcare services sector.

Portfolio quality is the key. The quality of SPH REIT's retail malls is backed by the positives of a large catchment population, strategic location and a balanced tenant mix. We particularly favor Paragon's unique integrated medical and retail offering, and believe that its niche in this aspect would leave it strongly placed to drive rental growth. For Clementi Mall, the advantage of a wide catchment area is expected to underpin its resilience amid the impending influx of suburban retail supply.

Sufficient financial flexibility to pull the acquisition trigger. With a comfortable debt headroom of S$351mil, SPH REIT has the financial flexibility to pursue acquisition opportunities. SPH REIT's near‐term focus remains in Singapore, and it could tap on its ROFR pipeline asset to catalyze further accretion to its distributions.

Initiate HOLD with FV of S$0.87. We initiate coverage on SPH REIT with a HOLD recommendation and a DDMderived fair value of S$0.87. From our perspective, SPH REIT's growth prospects and its defensive characteristics are already priced in. Current valuations present limited room for capital upside while a projected FY14 yield of Source: Bloomberg 5.4% pales in comparison with that of its retail peers.