SPH REIT – DBSV

A class act

• Portfolio of landmark assets with resilient cashflows
  
• Backed by reputable sponsor, SPH with a visible acquisition pipeline
  
• Initiate with HOLD, TP S$0.97
  

Portfolio of landmark assets. SPH REIT offers investors a unique exposure to the retail and healthcare services industry in Singapore, backed by a portfolio of landmark high quality commercial assets. We believe that the REIT will provide a stable yield platform with growth potential from organic and inorganic means.

Strong resilient cashflow. Paragon, which enjoys a high degree of tenant retention, provides a strong resilient cashflow stream while Clementi Mall provides room for organic growth as it moves into its first rental reversion cycle in FY14. The latter, which enjoys very strong pedestrian footfalls and a lower-than-industry occupancy cost, is anticipated to renew its leases positively.

Backed by a reputable and strong Sponsor. The Sponsor of SPH REIT is Singapore Press Holdings, a leading media organisation. In addition, it has more than a decade-long track record in the property sector since acquiring Paragon in 1997. It has also provided a ROFR that includes The Seletar Mall, currently under construction, to the REIT. This has provided SPH REIT with a visible inorganic growth driver.

Initiate with HOLD, TP S$0.97. We initiate SPH REIT with a HOLD call, TP S$0.97 based on DCF. While FY13-14F Yields of 5.4-5.6% are attractive given its stability, the REIT is trading at a premium to other retail-focused SREITs, which currently offer yields in the range of 6.1%-6.5%. Upside risks to our forecasts will hinge on better than anticipated performance of Clementi Mall or acquisitions which we have not factored in.