Why SPH shouldn't expect too much from proposed REIT listing

2 assets unlikely to be impressive.

According to CIMB, if its REIT deal does go through, asset sales are unlikely to be above SPH’s announced valuations. We think that implied cap rates of 4+% are aggressive against the implied 5+% for CMT’s and FCT’s retail assets. 

This suggests that Paragon and Clementi Mall are unlikely to be listed above their book values, if sold. SPH’s current share price better captures this reality, in our view.

Here's more:

Today’s share price reflects more realistic expectations from investors, in our view. Previously, its run-up was fuelled by expectations of a large  special dividend.

While we are not ruling that out, investors could be disappointed if it fails to materialise. SPH’s risk-reward has turned more favourable after its sell-down. 

Although weak ad revenue is likely to weigh on FY13 earnings, SPH’s dividends are not at risk. The firm generates large recurring cash flowsas it enjoys a near-monopoly of the newspaper industry in Singapore, publishing 18 out of its 19 newspapers. Management has been paying out close to or above 80% of SPH’s recurring earnings consistently.

Dividend yields of 5.7% are one of the highest among STI stocks.

We upgrade it to Neutral as its risk-reward trade-off has turned more favourable. Today’s share price reflects more realistic expectations from investors, in our view.

Previously, its run-up was fuelled by expectations of a large special dividend. While we are not ruling that out, investors could be disappointed if it fails to materialise. SPH’s risk-reward has turned more favourable after its sell-down.