Singapore Press Holdings - DBS Research 2018-09-10: Buys Student Accommodation Assets In The UK For c.S$321m

Singapore Press Holdings - DBS Group Research 2018-09-10: Buys Student Accommodation Assets In The Uk For C.s$321m SINGAPORE PRESS HLDGS LTD SGX:T39

Singapore Press Holdings - Buys Student Accommodation Assets In The UK For c.S$321m

  • Entry into student accommodation in the UK with S$321m purchase.
  • Estimated 6% FY17 proforma earnings accretion.
  • Part of diversification strategy, following purchase of Orange Valley nursing home in 2017.

What’s New - Buys 14 properties in 6 UK cities

Moves into student accommodation with S$321m acquisition.

  • Singapore Press Holdings (SPH) announced this morning that it has purchased student accommodation assets in the UK for GBP180.5m (c.S$321m at exchange rate of S$1.7785/GBP). This comprises of ten freehold and four leasehold assets in London, Birmingham, Bristol, Huddersfield, Plymouth and Sheffield with a total capacity of 3,436 beds.
  • Based on a valuation report by Cushman & Wakefield (5 Sep 2018), the assets are worth GBP180m (S$320.2m).

~ SGinvestors.io ~ Where SG investors share

Adjustment mechanism in final consideration.

  • The final consideration can be adjusted down by a maximum of GBP13.7m (c.S$24.4m) should the actual income be less than 95% of the projected level. In addition, the consideration can be adjusted upwards or downwards depending on the actual number of lettable rooms being more or less than the number stated by the sellers in the sales and purchase agreement. ~ Where SG investors share
  • Rental guarantee provided by the sellers is capped at GPB2.5m (c.S$4.5m).

EPS accretion of c.6% on FY17 profits.

  • Based on SPH’s announcement, post the acquisition, the assets would add c.5-6% to SPH’s FY17 earnings equating to about S$12m in profits. This translates into 3.7% earnings yield. We are in the process of clarifying if this is post or pre-financing. Assuming the proforma figures include financing costs, the yield looks fair. ~ Where SG investors share
  • The acquisition will be funded via both internal and external cash resources, with gearing not known at this point in time. Based on our expectations, the gearing could be at a maximum of 70%. Given SPH’s strong balance sheet, we believe funding should not be an issue.

Our View:

Diversification strategy in business lines and geographical areas.

  • The move is not a surprise to us. We see this as SPH’s diversification strategy away from the print business and property, and leveraging on its strong balance sheet for entry into businesses which offer resilient and visible cashflows. Recall that SPH has also ventured into aged home nursing, via the acquisition of Singapore-based Orange Valley homes back in April 2017.
  • Our forecasts and Target Price remains unchanged for now. In addition, the acquisition also helps to diversify the group’s operations outside of ingapore.

Alfie YEO DBSv Group Research | Andy SIM CFA DBSv Research | https://www.dbsvickers.com/ 2018-09-10
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