Singapore Press Holdings (SPH)

[KopiKat]

The bid was $541.898Mil and the valuations is now $570Mil... So, high bid "mistake" is now being transferred to REIT unit holders? Is it still a "mistake"?

The $570mil valuation has a footnote attached to it:

This takes into account an income support arrangement of five years which is proposed to be provided to the proposed SPH REIT. Further details regarding this income support arrangement are set out in the circular to shareholders of the Company dated 27 May 2013

For a full year, FY14 (Aug),

Income Support = $4,749,000
Manager's Mgmt Fee = $15,186,000

Let's not put in Trustee's Fees as it's insignificant in comparison.

Good deal? Bad mistake? I don't know...

I suppose someone will point out that Clementi Mall accounts for only ~18% of Net Property Income... but then again, I suppose we need a certain critical mass of assets to do a REIT IPO...

Extract from "SPH explains thinking behind mall bid Wed, Nov 18, 2009 The Business Times "

SPH's management yesterday explained that the venture's bid valuation was based on stabilised operations after the mall's rental renewal cycle, and enhancing yield over time.

'In other words, when we do our calculations, we are not using the rentals when we start operations. We are actually using after rental renewal cycle, whether it is after three years or six years,' said SPH chief executive officer Alan Chan.

Had SPH used the typical strategy of real estate investment trusts (Reits), which assume say a 5-6 per cent return based on rents when the mall starts operating, it would have led to bids in the $300 million range - where four of the six bids came in for the mall at the close of HDB's tender last Tuesday.

'When you are a Reit, you have to ensure immediate returns. Whereas we are long-term players and we are prepared to place our bets based on forward rentals at the next cycle,' Mr Chan said.

'This is the challenge the bidder is always confronted with: Do you use standard metrics or do you think out of the box?'

So that's why they included a 5 years income support for Clementi Mall which became operational only in 2011.

I wonder if they thought of that after of before the bid...

The implications:
- risk of income not meeting forecast AFTER the 5 years of income support
- caps dpu upside from rental reversions as rental increases (if any) will only go towards weaning off the income support

This problem has to be taken into consideration by those who're planning to invest in SPH REIT when it IPOs...

Wonder if SPH will continue to think out of the box and bid astronomical prices for future properties on behalf of SPH Reit?

If it's on behalf of SPH REIT, then they'd be slapping their own face if they still bid astronomical prices... Most likely, looking at other established REIT sponsors, SPH will continue to bid at astronomical prices to win tenders at all cost, 'incubate' the asset before offering it to SPH REIT as ROFR...