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SPH zooms in on retail, aged care, student accommodation, and digital media

Candace Li
Candace Li • 7 min read
SPH zooms in on retail, aged care, student accommodation, and digital media
To grow the SPH’s recurring income base and ensure sustainable returns for shareholders, the group focuses on sectors that are defensive and cash-yielding, underpinned by strong fundamentals, secular trends and positive demand-supply dynamics.
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SINGAPORE (May 15): Singapore Press Holdings’ (SPH) core business is the publishing of newspapers, magazines and books, in print and digital editions. In property, the group owns 65% of SPH REIT, whose portfolio comprises three retail assets in Singapore and stakes in two shopping malls in Australia. SPH also owns purpose-built student accommodation (PBSA) in the UK and Germany, and is a player in the aged care sector in Singapore — through its Orange Valley brand of nursing homes — and Japan.

Having embarked on your transformation journey, what are some notable developments and key focus areas for SPH in 2020?

As part of SPH’s transformation strategy, we have prudently and progressively re-allocated capital into defensive, cash-yielding assets to grow recurring income and achieve sustainable growth. These defensive assets include PBSA in the UK and Germany, retail malls in Australia via SPH REIT and aged care assets in Japan. We also make strategic investments into digital transformation of the media business.

The property segment is SPH’s largest profit contributor. Why has the group chosen to focus its diversification strategy on this sector?

To grow the SPH’s recurring income base and ensure sustainable returns for shareholders, the group focuses on sectors that are defensive and cash-yielding, underpinned by strong fundamentals, secular trends and positive demand-supply dynamics. Similar to building its retail asset management capabilities through SPH REIT, SPH believes in building long-term growth drivers with its PBSA and aged care businesses.

SPH’s expansion of its PBSA portfolio in the UK has established the group as a leading player in the sector. What is your strategy for this segment going forward?

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SPH has a dual-brand strategy with Capitol Students and Student Castle, to target both domestic and international students. We aim to integrate both brands to boost our in-house operational platform and technical development capabilities. We have undertaken development projects in Oxford and Brighton for the upcoming academic year, AY20/21. We’ve enhanced sales and marketing capabilities by partnering agents in China and India — the two fastest growing geographies of international students in the UK. We’ve invested progressively in building on-ground operational capabilities and have planned asset enhancement initiatives of £10.6 million ($16.25 million) for Capitol Students.

How does SPH REIT’s first foray overseas — via the acquisition of an Australian mall — align with the group’s portfolio and overall focus?

SPH REIT made its maiden overseas foray with the acquisition of Figtree Grove Shopping Centre, Australia, in December 2018, and expanded further with a 50% acquisition of Westfield Marion Shopping Centre in 2019. The latter is the only super regional shopping centre in South Australia with 99.3% occupancy, weighted average lease expiry (WALE) of 6.7 years, and annual visitors of 13.5 million. This geographical diversification aligns with SPH REIT’s vision to be a premier REIT in Singapore and Asia-Pacific. We believe that our portfolio of high-quality, income-producing retail properties will continue to generate sustainable returns and recurring income.

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SPH is one of Singapore’s largest private sector players in aged care with its chain of Orange Valley Nursing Homes. How does the group plan to grow this segment? Are there plans to continue acquiring overseas assets in this space?

We actively review investment opportunities in countries with fast-ageing populations such as Japan, where the elderly population (65 years and above) is expected to rise to over 30% by 2025. SPH has an existing partnership with Japanese real estate asset manager, Bridge C Capital, to establish a fund focused on investing in aged care assets. We expect to gain asset management fees as part of the fund, which contributes to the recurring income streams from these defensive assets.

The outlook for the media business remains challenging with a continued decline in advertising revenues. What will be the focus of your strategy for this segment?

SPH will continue to strategically invest resources and efforts to grow the digital business while innovating across traditional media platforms. We aim to maintain the high quality of journalism in our newsrooms and build our overseas audience base. We continue to raise efficiency, such as selling cross-platform media solutions and reviewing our business model to trim fixed and variable costs. SPH has seen strong growth in digital revenue and subscriptions. We received seven awards at Asian Digital Media Awards 2019, in recognition of our efforts in digital media.

To operate in competitive and dynamic sectors such as retail and PBSA, what are the key priorities underlying SPH’s strategies for these businesses?

We leverage on our balance sheet strength to maximise shareholder returns by enhancing cash-on-cash yields on our investments in defensive asset classes. We will continue to adopt a disciplined approach to capital management by conducting rigorous screening, regular review of performances and exercise capital recycling for our investments and businesses.

How has Covid-19 affected SPH across its operations?

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Which divisions are more affected and what measures have you put in place to mitigate the impact? SPH’s recent drawdown of $325 million increased its cash balance to over $800 million. This healthy cash buffer will assist us to weather a prolonged impact from Covid-19 and to continue our transformation strategy. Precautionary measures have also been taken at all our assets to ensure safety of our staff and tenants.

For media, focus on the growth in digital subscriptions amidst disruption to print distribution and continue to maintain quality news content with minimal staff on-site.

For retail, we are committed to return 100% of property tax rebates (via SPH REIT) to support tenants. Tenant rebates of around $4.6 million have been granted to affected tenants as well as full rental waiver for eligible non-trading retail and medical tenants in February and March, with another two months of full rental waiver for eligible non-trading retail and medical tenants for April and May to assist tenants further. We refinanced a $280 million five-year loan to ensure a well-staggered debt maturity profile, with a healthy gearing ratio of 29.3%, and no other refinancing will be required till June 2021.

For PBSA, refunds of £4.5 million were offered to students who wished to vacate their tenancies before the end of term for academic year AY19/20, of which more than 20% is in the form of credits. We continue to see positive momentum on bookings for AY20/21 with about 60% achieved as at April 21, outperforming AY19/20’s bookings at the same time last year.

For aged care, SPH announced in early 2020 that in order to conserve cash in light of global market instability caused by the pandemic, it will not be proceeding with an acquisition in Canada.

What aspects of SPH’s business do you think investors should focus on? We believe that we have a resilient balance sheet, with healthy cash reserves and ample liquidity to weather a prolonged Covid-19 impact. For the long term, SPH will continue to transform its key business segments, focusing on digital transformation of the media business and building new operating segments in retail, PBSA and aged care.

What is SPH’s value proposition to its shareholders and potential investors?

We believe that SPH’s sharpened strategic focus on main business segments of media, retail, PBSA and aged care has positioned it well for the eventual economic recovery. SPH believes that its digital transformation is showing progress and its enlarged retail, PBSA and aged care portfolios will grow recurring income to drive sustainable returns for our shareholders. Management believes that SPH’s ongoing effective capital management programme will continue to optimise capital allocation and streamline processes for increased efficiency.

Candace Li a research analyst with Singapore Exchange

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