Month: July 2007
CDL REITS – DBS
CDL REIT – BNP
– We believe CDREIT, a BNP Top Pick, will enjoy higher RevPAR in fiscal 2007 and 2008, underpinned by the uptrend in tourist arrivals and the supply crunch. We forecast a 30% and 25% jump in the average room rate of CDREIT’s portfolio of Singapore hotels in 2007 and 2008, respectively. Maintain BUY, with a revised target price of SGD2.81.
– Upgrading our RevPAR assumptions . We raise our RevPAR growth assumptions for CDREIT’s portfolio of Singapore hotels to 37% for 2007 (27% previously) and 28% for 2008 (21% previously), underpinned by a combination of both increasing room rates and improving occupancies.
– Rising demand and limited supply should propel room rates to new highs in 2007 and 2008 , The Singapore hotel industry has witnessed robust growth led by the strong tourism uptrend and the hotel shortage situation. The new supply of rooms is likely to be limited to only 2% in 2007 and 7% in 2008, with visitor growth estimated to rise 6-7% annually. With the emergence of low-cost carriers throughout Southeast Asia, interregional travel should grow rapidly. Singapore is also seeking a bigger slice of the multibilliondollar meetings, incentives, conventions and exhibitions (MICE) market, which is expected to grow to 100m in the Asia-Pacific by 2015, from 50m at present. We see greater vibrancy in the leisure and business travel space, considering the host of measures undertaken by the government to strengthen Singapore’s tourism offering.
– Upward revision in hotel rates to drive DPU growth . CDREIT’s strong operating trends will continue to feed through to 2008. We raise our 2007 earnings estimates to SGD68.8m from SGD66.7m, which is premised on the assumption of a portfolio average room rate (ARR) of SGD212 (SGD202 previously), average occupancy of 87% (85% previously) and a further SGD276m worth of acquisitions in 2H07 at an NPI yield of 5.5%.
– New target price of SGD2.81, based on DDM valuation . We maintain our BUY rating on CDREIT and have upgraded our target price to SGD2.81 from SGD2.28. Our 12-month target price is based on DDM, using a WACC of 6.3% and a terminal growth rate of 1%. We have adopted the DDM approach given the steady income distributions from the REIT structure. DDM also captures the longer-term impact of sustained growth in DPU.
Ascott Reit – Daiwa
ASCOTT REITS, daiwa downgraded to UNDERPERFORM from Hold with target price $2.47
Allco – Nomura
– Since listing, Allco, via lease negotiations (in both Singapore and Perth) and acquisitions, has lengthened the average lease term to 12.8 years and introduced annual rental increases. With cashflows underpinned, we think Allco is set to pursue further opportunistic acquisitions. We retain our STRONG BUY call. – Allco NAV raised, stronger balance sheet. We raise our NAV-based fair value estimate to S$1.73/unit (pre-rights issue), on a brighter outlook for the Perth and Singapore office markets. We expect a more positive outlook for office rents to flow through to higher asset valuations. The lift in revaluation reserves, combined with the current rights issue, as well as approval at the recent EGM for a general mandate to issue new units (on our numbers, an additional 248mn, raising circa S$280mn), will further de-leverage the balance sheet providing scope for Allco to execute its acquisitive strategy in Asia. To reflect more optimistic rental growth expectations, we raise FY08F and FY09F earnings by 5.6% and 8.8%, respectively. – Perth office market — squeeze continues . The Perth office market continues to be characterised by strong demand and a severe shortage of supply. Indeed, vacancy at end-2006 fell to 0.9%, from 3.5% in June 2006. CBRE is suggesting that Perth CBD vacancy will remain below 1% over the next two years due to the lack of supply — no significant supply is scheduled for completion until 2009F. Respite should emerge in 2009F, however, with 200,000sm scheduled for completion over 2009-11F. With limited space options available for – tenants and the prospect of higher supply in two-three years, landlords Grade A face rents in 2006, according to CBRE, rose by 28% y-y, with rentals in 1Q07 rising by an estimated 6.4% q-q. Premium Grade A (face) rents are currently A$500/psm pa, while Grade A rents are A$420/psm. CBRE expects rents to rise by 16-25% in 2007. We raise our rental growth forecasts for Central Park Perth to 17.5% in 2007F (from 15.0%) and 12.5% in 2008F (from 8.5%). These forecasts may prove conservative in light of the supply shortage. Over the past year, prime office yields compressed 50-75bps, with office yields at end-1Q07 at 5.75-6.75%, versus 6.50-7.25% in 1Q06. – Upgrade office rental outlook: +30.5%, 2007F; +15.8%, 2008F. We upgrade our outlook for the office market following a significant drop in vacancy in 2006, and strong rental growth in 1Q07. Office vacancy in the Raffles Place precinct has fallen to 3.2% as at 1Q07 (most recent figure from real estate consultancy JLL) from 3.6% in 4Q06 and 8.6% in 4Q05. According to JLL, Grade A rents in the Raffles precinct have increased by 22.9% q-q to S$11.80psf; CBRE suggests they have increased by 21.4% q-q to S$10.60psf. We expect rentals to peak in 2009. Our higher market rental numbers feed through to higher asset valuations. We now value China Square at S$1,489psf (previous: S$1,375psf) and 55 Market Street at S$1,607psf (previous: S$1,549psf). These valuations appear reasonable in the context of recent en-bloc transactions. Note that Temasek Tower was sold for S$1.04bn (S$1,550psf); Singapore Exchange’s interest in SGX Centre was sold for S$271mn (S$1,599psf); 1 Finlayson Green was sold for S$231mn, equal to S$2,470-2,650psf. (The current existing net lettable area of 86,500sf, though, could be increased to 93,500sf if leased to a single tenant.)
K-REIT – Nomura
– The continued stronger-than-expected recovery in office rentals augurs well for rental reversions and asset revaluations into FY07F. We have upped our DPU forecasts (by 2.9% in FY07F and 11.1% in FY08F) and NAV (to S$3.52/unit from S$3.17/unit) and lift our call to STRONG BUY from Buy.
– Low gearing, asset pipeline underpins acquisitive growth . K-REIT Asia has one of the lowest gearing levels among our universe of REITs, at 0.28x. On our estimates, with gearing of 0.45x, K-REIT could debt fund an additional S$210mn of new acquisitions and increase its assets under management to about S$900mn. As office values rise, sourcing assets will be increasingly difficult. That said, Keppel Land’s office portfolio of 1.3mn sf in Singapore and 0.8mn sf in the rest of Asia provides a substantial pipeline of assets for K-REIT. This pipeline should be augmented by assets owned by parent Keppel Corporation. Certainly the pipeline offers scope for K-REIT to reach its portfolio target size of S$2bn over the next few years”.
– Lease renewal pick-up at strongest point in cycle . The current committed occupancy of the portfolio is 99.4% (end-1Q07), versus 95% in December 2005. Indeed, some 53% of leases (by net lettable area) are being renewed over the three years covering 2007- 09 a period we would consider to be the strongest point in the current office reversionary cycle.
– Brighter prospects for rents and asset values. We have upgraded our outlook for the office market following the significant drop in vacancy in 2006, and strong rental growth in 1Q07. Office vacancy in the Raffles Place precinct has fallen to 3.2% as at 1Q07 (latest figure from JLL), from 3.6% in 4Q06 and 8.6% in 4Q05. According to JLL, Grade A rents in the Raffles precinct increased by 22.9% q-q to S$11.80psf. CBRE estimates that Grade A rents rose by 21.4% q-q to S$10.60psf. We forecast rents will rise by 30.5% in 2007F (versus 15.9% previously) and 15.1% in 2008F (from 11.0% previously) to S$14.51psf. We expect rentals to peak in 1H09, broaching S$14.50psf, given expectations of new supply in 2010-13F.