SPH / SPH Reit

SPH / SPH Reit: Set to be priced at 85 to 90c per unit. In its preliminary prospectus, SPH Reit, comprising Paragon Mall and Clementi Mall, indicated it will offer some 308.9m units for its IPO. This is subject to an over-allotment option. The public will be able to subscribe to about 84m units; the other 224.9m units will be offered under the placement tranche to investors. No indicative dates were provided for the listing. The distribution yield works out to an annualised rate of between 5.6 - 5.8% and the yield is inclusive of income support. Excluding income support, the yield will be between 5.4 - 5.5%. SPH Reit will have a gearing of between 27.3 - 31.3%, depending on how much it draws upon a secured term loan facility. After the offering (without the over-allotment), SPH, NTUC and the cornerstone investors will own 72.2/5.4/10.0% of total outstanding units while free float only accounts for the remaining 12.4%. Limited free float could help a successful IPO despite the recent market uncertainty. Maybank-KE expect the IPO process to finish by August, slightly later than management’s original plan. Maybank-KE maintains BUY but cut TP to $4.52 on higher risk-free rate. House believe that such a spinoff could benefit SPH shareholders in the long term. However, given the rising interest rates, adjust risk-free rate assumption to 3% and lower our TP to SGD4.52 accordingly. Short term downside risk for the stock is mainly the possibly lower-than expected 3Q13 results which will be announced next Monday.