Positives of a REIT listing include cash inflow, asset value realization. The listing of SPH's property assets (we assume Paragon and Clementi Mall) into a REIT has its positives: (1) potential gross cash inflow of SGD1.5bn (assuming SPH keeps 50% cash and remainder as REIT shares), (2) upside in gross asset value realization of SGD1.3bn (Paragon and Clementi are valued at SGD1.75bn on SPH's books versus market value of SGD3.03bn), (3) higher income in the form of dividends as a REIT is tax exempt with a minimum earnings payout of 90%.

However we see a REIT listing to have little impact on our valuations. With the assumption of SPH receiving 50% of the asset value (of Paragon and Clementi) in cash, and the remainder as equity interest in the REIT (which trades at implied dividend yield of 5.5%), our SOTP TP would be unchanged at SGD4.30. Should the REIT trade at a lower 5.0% dividend yield, our SOTP TP would increase by 2.1% to SGD4.39.

Positive for investors given retail REITs current 4.5-5.0% yield. We assumed (1) a listing of Paragon and Clementi Mall, (2) 35% debt ratio, (3) NPI of SGD140m, (4) finance cost at 2% of debt to derive a dividend yield of 5.5%, which is more attractive than the current retail REIT sector's 4.5-5.0%.

Maintain NEUTRAL, SOTP TP of SGD4.30. We have (1) increased our N&M segment P/E multiple by 25% to 13.8x (in line with peers), (2) revised our in house property segment valuation to that of market, and (3) updated value of stakes in list cos. Our SOTP TP has been lifted to SGD4.30 (from SGD3.80). Our TP does not factor in a REIT listing of SPH's property assets.

Source: OSK