• SPH (SGX:T39) is entering the final stretch of its proposed restructuring as shareholders overwhelmingly approved Cuscaden’s improved offer.
• SPH shareholders will now choose between cash and cash-plus-units payment options according to their preferences, which may lead to a Mandatory General Offer for SPH REIT (SGX:SK6U).

Cuscaden’s Sweetened Offer Accepted by SPH Share Holders

• As mentioned in our previous update, SPH held its EGM on 22 Mar 22 with the vast majority of SPH’s shareholders (89.2% of shareholders, 96.6% of total shares represented) voting in favour of Cuscaden’s scheme as expected, securing the approval for the sale of SPH’s non-media assets to Cuscaden.
• SPH also approved the distribution in-specie (DIS) resolution of SPH REIT shares to SPH shareholders. Despite ongoing arbitration with Keppel Corp (SGX:BN4), Cuscaden’s Scheme is allowed to proceed once SPH shareholders approve both the Scheme and DIS resolution.

Next Steps to Delisting

• Moving forward, Cuscaden would apply to the Court for the sanction of the Scheme around 5 Apr 22. SPH shareholders would then expect to receive election forms from Cuscaden by mid-Apr 22, for them to indicate which payment scheme (cash or cash-plus-units) they prefer within a two-week submission deadline.
• Lastly, payment for the Scheme would happen around 11 May 22 according to the elected payment method, with the delisting of SPH happening shortly after.
• Now that Cuscaden’s Scheme is approved, takeover of SPH REIT is next. Depending on the final proportion of SPH shareholders choosing between the two options, Cuscaden might make a mandatory general offer for all the units of SPH REIT at a minimum price of S$0.964/share, only if Cuscaden and its related parties hold more than 30% of SPH REIT units after the DIS. This implies that if less than 80% of SPH’s shareholders choose the cash-plus-stock option, which is very likely in our view given the preference for a full-cash offer, Cuscaden would be obligated to make a mandatory general offer (MGO) for SPH REIT at S$0.964/share. Cuscaden is not obligated to offer anything higher.

No Surprise Given High Quality Retail and Commercial Assets

• Tenant sales from Singapore’s suburban malls (Seletar and Clementi Malls) have already crossed pre-COVID-19 levels while sales in Australia have recovered to pre-COVID-19 levels. As both Singapore and Australia start transitioning to living with the endemic, footfall is poised to return to these malls.
• With 99% overall occupancy, a healthy portfolio WALE of 5.4 years (NLA) and 2.7 years by gross rental income (GRI), we reckon that large property and real estate managers such as Cuscaden would find these assets attractive when merged with their own respective portfolios.

Highly Prized Student Accommodation Assets

• Peers in the UK, GCP Student Living and Unite Group, currently trade at around 1.2x P/B. This asset type is increasingly sought after given its resilience to COVID-19 and the reopening of international borders. These assets have also outperformed in 2HFY21 with full occupancy rates in most of the properties and are facing rising room rentals due to strong demand.
• Valued at around S$1.5b as of end-FY21, a potential listing of a REIT vehicle or divestment may unlock value for potential buyers.

Mandatory General Offer Incoming for SPH REIT

• In our view, we expect Cuscaden to make a MGO for SPH REIT as a large proportion of investors would choose the full-cash option. Thus, we recommend that shareholders choose the full-cash option as it represents better price stability and flexibility while the cash-plus-units option comes with volatility due to the expected MGO.

Source: UOB Kay Hian Research - 24 Mar 2022