SPH mulls spinning off its property segment into a REIT

But only when it reaches significant scale.

According to Maybank Kim Eng, SPH addressed some challenges in managing its retail property rental business and expanding its online businesses, while still dealing with a structurally declining publishing industry.

Here's more from Maybank Kim Eng:

We understand that SPH will continue to seek opportunities to grow its online businesses in the region, while at the same time sustain performance in its publishing business.

Spinning off its property arm into a REIT is on the cards but may only happen when it reaches significant scale. Management has also maintained its promise of a high percentage payout of recurring earnings as dividends.

Profitable online business in Malaysia; Singapore, Indonesia and Philippines to catch up. In Malaysia, SPH is profiting from being the current market leader in online classifieds. In Indonesia and Philippines however, it is in 2nd place and is still loss making.

Management shared that it sees potential for online classifieds business to grow. Newswires had indicated that classified site Le Bon Coin’s (SPH’s partner in online classifieds) business has been growing substantially.

Dividends – maintaining its stance on high percentage of recurring earnings payout. SPH did not give specifics on how much dividend would be paid in FY13, but however maintained its promise of a payout that will equal to a high percentage of recurring earnings.

Annual dividends of 24S¢ a share was paid out over the past two years, which amounted to a payout ratio of above 90%. We are forecasting dividends of 24S¢ a share for FY13 as well, which translates to a 5.9% yield.

REIT spin-off on the cards, but not likely in the near future. SPH’s property segment has been performing well, with Paragon mall reporting consistent rental reversions. Both Paragon and Clementi mall are recording 100% occupancy rates and together account for 23% of group PBT.

SPH’s latest property project Seletar mall is due completion by end 2014. SPH has commented that it will spin off its property segment into a REIT but did not indicate a timeframe. We believe this could take place when its property segment is operating on a more scalable level.