Singapore Press Holdings (SPH)

[dtane]

Goodness, my made an error in the figures, the cash pile they will be receiving after giving the S$0.18 special dividend should be S$232,743,171.34 (Units sold at S$0.85) to S$263,743,171.34 (Units sold at S$0.90)

Hi Drizzt,

My thoughts on why it is better to buy SPH is because after spinning off the properties into the REIT, SPH’s gearing drops to 9% from 40% and they now have a huge cash pile to build up more malls or to reinvest into other ventures. Furthermore they can gear themselves up to 40% or more again if they wish to, therefore with the cash pile of S$757,743,171.34 (after giving S$0.18 special dividend) and a possibility to gear up again to 40% approximate cash of S$720,769,220 (31% increase in gearing), they have S$1,478,512,391.34 to reinvest.

Total number of shares = 1,612,537,937 (Ordinary + Management + Treasury)

Ungeared Cash increase per share = S$0.4699

If we assume a conservative 4% yield / return on this amount, it is an additional S$70,750,768.80 (with gearing) and without increasing gearing to 40%, it can be an additional S$41,920,000 profits.

Ungeared possible increase in earning per share = S$0.02599

As a REIT manager after spinning off the properties, SPH will have recurring fees based on 2012 values of :

0.25% per annum of the value of deposited Property (S$3,070,500,000) = S$7,676,250

5% NPI (S$137,615,000) = S$6,880,750

0.75% - 1% for Acquisition = S$0

0.5% Divestment = S$0

Dividend from REIT without income support – 2,500,995,000 units – SPH owns 1,750,697,000 which will generate dividend of S$0.04815 per unit (5.35%) = S$84,296,060.55

Total amount of profit before tax generated is S$98,853,060.55 this is quite close to the current profit before tax which SPH is receiving in 2012 of S$99,970,000.

Therefore if SPH can make good use of the cash pile they have, their recurring pre-tax profit can be more than what they would have made if they did not spin off.

On that reason, it is my opinion that it is better to buy SPH.

Now as to the declining profits from the media segment, the drop will not be too drastic looking at the past 5 years and excluding year 2009.

2011 to 2012 drop 8.34%

2010 to 2011 increase 0.25%

2008 to 2010 drop 1.60%

Furthermore SPH has significant free cash flow which gives them a lot of leeway to invest in more properties if they wish to.

Hmm i hope what i have written makes sense.

[Drizzt]

Goodness, my made an error in the figures, the cash pile they will be receiving after giving the S$0.18 special dividend should be S$232,743,171.34 (Units sold at S$0.85) to S$263,743,171.34 (Units sold at S$0.90)

Hi Drizzt,

My thoughts on why it is better to buy SPH is because after spinning off the properties into the REIT, SPH’s gearing drops to 9% from 40% and they now have a huge cash pile to build up more malls or to reinvest into other ventures. Furthermore they can gear themselves up to 40% or more again if they wish to, therefore with the cash pile of S$757,743,171.34 (after giving S$0.18 special dividend) and a possibility to gear up again to 40% approximate cash of S$720,769,220 (31% increase in gearing), they have S$1,478,512,391.34 to reinvest.

Total number of shares = 1,612,537,937 (Ordinary + Management + Treasury)

Ungeared Cash increase per share = S$0.4699

If we assume a conservative 4% yield / return on this amount, it is an additional S$70,750,768.80 (with gearing) and without increasing gearing to 40%, it can be an additional S$41,920,000 profits.

Ungeared possible increase in earning per share = S$0.02599

As a REIT manager after spinning off the properties, SPH will have recurring fees based on 2012 values of :

0.25% per annum of the value of deposited Property (S$3,070,500,000) = S$7,676,250

5% NPI (S$137,615,000) = S$6,880,750

0.75% - 1% for Acquisition = S$0

0.5% Divestment = S$0

Dividend from REIT without income support – 2,500,995,000 units – SPH owns 1,750,697,000 which will generate dividend of S$0.04815 per unit (5.35%) = S$84,296,060.55

Total amount of profit before tax generated is S$98,853,060.55 this is quite close to the current profit before tax which SPH is receiving in 2012 of S$99,970,000.

Therefore if SPH can make good use of the cash pile they have, their recurring pre-tax profit can be more than what they would have made if they did not spin off.

On that reason, it is my opinion that it is better to buy SPH.

Now as to the declining profits from the media segment, the drop will not be too drastic looking at the past 5 years and excluding year 2009.

2011 to 2012 drop 8.34%

2010 to 2011 increase 0.25%

2008 to 2010 drop 1.60%

Furthermore SPH has significant free cash flow which gives them a lot of leeway to invest in more properties if they wish to.

Hmm i hope what i have written makes sense.

i thought it should be more 900 mil they will pay out 1/3 leaving 600 there.

[finnfinn]

hi dtane, you worked out the sums that it is likely they will leverage up to purchase an asset of 1000 mil, which at 4% will generate 40 mil.

it is up to your analysis whether the deteoriation in the media is prolong or not. and that is the crux whether it is a good invesment. an 8% drop off 300 mil is less than 40 mil but a sustainable drop you wonder if they will make up for it.

finnfinn, i dont think they will be sensible, if you judge the price they bidded Clementi mall.

Yah. Looks expensive then but the reit will help them reverse that?

[dtane]

According to the "Use of Proceeds" under the IPO Prospectus, it states that SPH intends to raise gross proceeds of between S$523 mil to S$554 mil and they will drawdown from their loan facility of an amount between S$850 mil to S$975 mil.

Goodness, my made an error in the figures, the cash pile they will be receiving after giving the S$0.18 special dividend should be S$232,743,171.34 (Units sold at S$0.85) to S$263,743,171.34 (Units sold at S$0.90)

Hi Drizzt,

My thoughts on why it is better to buy SPH is because after spinning off the properties into the REIT, SPH’s gearing drops to 9% from 40% and they now have a huge cash pile to build up more malls or to reinvest into other ventures. Furthermore they can gear themselves up to 40% or more again if they wish to, therefore with the cash pile of S$757,743,171.34 (after giving S$0.18 special dividend) and a possibility to gear up again to 40% approximate cash of S$720,769,220 (31% increase in gearing), they have S$1,478,512,391.34 to reinvest.

Total number of shares = 1,612,537,937 (Ordinary + Management + Treasury)

Ungeared Cash increase per share = S$0.4699

If we assume a conservative 4% yield / return on this amount, it is an additional S$70,750,768.80 (with gearing) and without increasing gearing to 40%, it can be an additional S$41,920,000 profits.

Ungeared possible increase in earning per share = S$0.02599

As a REIT manager after spinning off the properties, SPH will have recurring fees based on 2012 values of :

0.25% per annum of the value of deposited Property (S$3,070,500,000) = S$7,676,250

5% NPI (S$137,615,000) = S$6,880,750

0.75% - 1% for Acquisition = S$0

0.5% Divestment = S$0

Dividend from REIT without income support – 2,500,995,000 units – SPH owns 1,750,697,000 which will generate dividend of S$0.04815 per unit (5.35%) = S$84,296,060.55

Total amount of profit before tax generated is S$98,853,060.55 this is quite close to the current profit before tax which SPH is receiving in 2012 of S$99,970,000.

Therefore if SPH can make good use of the cash pile they have, their recurring pre-tax profit can be more than what they would have made if they did not spin off.

On that reason, it is my opinion that it is better to buy SPH.

Now as to the declining profits from the media segment, the drop will not be too drastic looking at the past 5 years and excluding year 2009.

2011 to 2012 drop 8.34%

2010 to 2011 increase 0.25%

2008 to 2010 drop 1.60%

Furthermore SPH has significant free cash flow which gives them a lot of leeway to invest in more properties if they wish to.

Hmm i hope what i have written makes sense.

i thought it should be more 900 mil they will pay out 1/3 leaving 600 there.

[Drizzt]

hi dtane, you worked out the sums that it is likely they will leverage up to purchase an asset of 1000 mil, which at 4% will generate 40 mil.

it is up to your analysis whether the deteoriation in the media is prolong or not. and that is the crux whether it is a good invesment. an 8% drop off 300 mil is less than 40 mil but a sustainable drop you wonder if they will make up for it.

finnfinn, i dont think they will be sensible, if you judge the price they bidded Clementi mall.

Yah. Looks expensive then but the reit will help them reverse that?

hi, in what way will it reverse that, as in that the REIT will make it better?

no doubt clementi like bedok is quite a populated area but for the new potential unit holders in SPH REIt, they "buy" the asset at high value, and since a large determinate of the value is the summation of future cash flows, their rental growth and rental income must be higher than other suburban reit.

either that or the reason tis more valuable is because its a 96 year land lease compare to other existing suburban mall lan lease at 70+ years land lease

[KopiKat]

hi dtane, you worked out the sums that it is likely they will leverage up to purchase an asset of 1000 mil, which at 4% will generate 40 mil.

it is up to your analysis whether the deteoriation in the media is prolong or not. and that is the crux whether it is a good invesment. an 8% drop off 300 mil is less than 40 mil but a sustainable drop you wonder if they will make up for it.

finnfinn, i dont think they will be sensible, if you judge the price they bidded Clementi mall.

Yah. Looks expensive then but the reit will help them reverse that?

hi, in what way will it reverse that, as in that the REIT will make it better?

no doubt clementi like bedok is quite a populated area but for the new potential unit holders in SPH REIt, they "buy" the asset at high value, and since a large determinate of the value is the summation of future cash flows, their rental growth and rental income must be higher than other suburban reit.

either that or the reason tis more valuable is because its a 96 year land lease compare to other existing suburban mall lan lease at 70+ years land lease

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"?

[Drizzt]

perhaps that is the transfer. this clementi mall looks valuable in that aspect

[swakoo]

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

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.

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

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

[NTL]

Based on last FY presentation, Clementi Mall was valued at $598M in Aug 2012. Does that means that it lost close to $30M over a half year period? Or simply just a change in valuation method/criteria? And this is with consideration of income support.

[Drizzt]

correct me but does the bid includes construction and fitting cost in the first place?