Singapore Press Holdings (SPH), the media company that publishes the Singapore Straits Times and numerous other newspapers and magazines, is pushing ahead with its plan to list some of its properties through a real estate investment trust.
In an announcement published on Monday evening it said it will sell two leasehold retail properties — the Paragon mall and office complex on Orchard Road and the Clementi Mall, a mid-market suburban mall in the west of Singapore — to a new vehicle called SPH Reit for S$3.07 billion ($2.4 billion).
SPH Reit will then be listed in its own right on the Singapore Exchange via an initial public offering of about S$540 million, the company said, noting that it will continue to hold about 70% of the Reit after the listing. Part of the proceeds that it will receive from the sale of the properties will be distributed to its existing shareholders in the form of a special cash dividend of S$0.18 per share.
SPH’s share price gained as much as 3.9% yesterday on the news of the dividend, which is equal to 75% of the dividend paid for the entire financial year to August 31 last year, before finishing the day 1.8% higher at S$4.47. The stock jumped 7.4% to S$4.48 in two days when the company first announced its plans for a Reit in early March and hit a 2013 high of S$4.65 on April 10, but lost most of those gains shortly afterwards. It has since resumed its gradual upward trend.
In a research note issued yesterday morning, Citi analyst Horng Han Low said there is limited further upside for SPH as the market has already priced in the prospects of the asset recycling into a Reit.
“We do not think there is a significant change in the fundamental outlook since the core media business will continue to face strong headwinds,” he said, but added that the management may use some of the remaining cash proceeds of about S$757 million from the property spin-off to fund a pipeline of growth initiatives, including M&A activities, which could be of interest to investors in the longer term.
The company itself did list the ability to unlock value in its properties as a key reason for the listing of SPH Reit and said the capital derived from this exercise will allow the group to pursue growth strategies across its various business lines. Based on its financial situation at the end of August last year, the sale of the two properties will result in drop in its net gearing to 9.3% from 40.6% before the payment of the special dividend and its net asset value will increase by more than 63% to S$2.27 per share.
The company also noted that the separate listing will create an efficient platform for the holding of future investment properties, particularly since the Reit will be able to finance itself through the capital markets. And since SPH will be the sole owner of both the Reit manager and the property manager, it will also be able to collect a recurrent management fee from the Reit, which will add “a valuable fee-based management business” to the group’s portfolio, it said.
“SPH has always endeavoured to explore new avenues for growth to maximise shareholder value. Through this transaction, SPH shareholders will be able to enjoy the best of both worlds — a special dividend and the opportunity to continue to enjoy the benefits from the establishment of SPH Reit in which the group will continue to be closely involved,” SPH’s chief executive, Alan Chan, said.
SPH Reit will have a mandate to invest in completed income-producing real estate in Asia-Pacific that is at least 50% used for retail purposes and will have a right of first refusal if SPH or any of its subsidiaries decide to sell such properties in the future.
Aside from the two properties that will be included in SPH Reit’s initial portfolio, SPH also owns a 43-storey upmarket residential building — the [email protected] — and is the process of developing The Seletar Mall, which is scheduled for completion by the end of 2014.
SPH is joining a number of other sponsors trying to tap into the current investor appetite for yield as an alternative to the continuing volatility in global stock markets. Earlier this year, the Mapletree Group injected a couple of retail and office properties in Hong Kong and Beijing into Mapletree Greater China Commercial Trust, which raised $1.3 billion from Singapore’s largest-ever Reit IPO. And in early May, Croesus Retail Trust became the first business trust holding Japanese retail properties to list in Singapore.
Meanwhile, Asian Pay Television Trust will be the first Singapore-listed business trust focusing on media assets when it starts trading today. The trust, which is sponsored by Macquarie, raised $1.1 billion from its IPO.
These three vehicles were priced at implied first-year yields of between 5.6% and 8.5%, and attracted a lot of interest from investors.
The Reit and business trust listings in Singapore have contributed to the fact that equity capital markets volumes in Southeast Asia are at the highest year-to-date level on record, according to Dealogic. So far this year, there have been $15.8 billion of ECM deals in the region, which is more than double the $7.1 billion recorded in the same period last year. It also accounts for 19% of the total ECM volume in Asia-Pacific, up from 10% in the first five months last year.
SPH Reit will pay a fixed price of S$2.5 billion for Paragon and S$570.5 million for Clementi Mall, which is largely in line with Knight Frank’s independent valuation of S$2.502 billion and S$570 million respectively. Part of the payment will be in cash, part in the form on Reit units.
SPH said it expects to raise net cash proceeds from approximately S$1.048 billion from the sale, assuming an offering size of S$540 million (including a fully exercised overallotment option), a market capitalisation of about S$2.2 billion, and S$900 million of debt held by the Reit.
Of the cash proceeds S$361.2 million will go to non-controlling owners of Paragon, S$290.9 million will be used to pay the special dividend and S$500,000 will cover fees and expenses, leaving S$757.4 million to fund other growth strategies.
SPH’s shareholders will need to approve the sale of the two properties to the Reit as well as the special dividend at an extraordinary shareholders meeting on June 18 before the company can go ahead with the IPO.
Aside from its print business, which includes magazines and book publishing, SPH is also involved in radio broadcasting, events, exhibits and out-of-home advertising.