SPH REIT target price raised by DBS on Keppel’s SPH bid

Singapore two-dollar bills

Correction: A previous version of this article had an incorrect figure for the cash portion of Keppel’s offer to acquire SPH. The cash consideration portion of the offer is S$0.668. 

DBS raised its target price on SPH REIT to S$0.92 from S$0.80, pegged to Keppel Corp.’s offer to take the REIT’s sponsor, Singapore Press Holdings (SPH) private.

In a surprise announcement Monday, Keppel proposed acquiring SPH for S$2.24 billion, with a plan to delist and take the company private after carving out its media assets. For every SPH share held, SPH shareholders will receive S$0.668 in cash and 0.596 Keppel REIT unit, as well as 0.782 SPH REIT unit.

The offer price translates to a valuation of S$0.92 a unit for SPH REIT, DBS said in a note Monday, adding that likely formed a price cap for now.

“The stock will likely trade sideways for now in our view given that the offer price is locked in at SPH REIT’s current trading levels,” DBS said.

But looking ahead, the higher free float for SPH REIT — which will go to 80 percent from what DBS calculated as around 29 percent — would put the REIT higher on the list of candidates for index inclusion, the bank said.

DBS kept a Hold call on SPH REIT; it pointed to the Paragon property, located in Singapore’s Orchard Road shopping belt.

“Paragon continues to lag the broader retail recovery alongside other tourist positioned malls on Orchard Road,” DBS said, noting the mall’s revenue this quarter was S$32.2 million, down on-quarter, on rental relief to tenants as Singapore went through a semi-lockdown period to stem the spread of the Covid-19 virus as well as on the effect of negative rental reversions.

Tenant sales at the mall fell to 50 percent to 60 percent of normalised levels, compared with suburban asset Clementi mall, which was only slightly below normalised levels during the phase 2 heightened alert (Phase 2HA) period, DBS noted.

DBS has factored a lower occupancy of 95 percent at Paragon, with a negative rental reversion of 5 percent this year, citing a “conservative stance that a slower recovery profile is likely.”

Units of SPH REIT were down 2.73 percent at S$0.89 at 10:34 a.m. SGT.