Month: July 2009

 

Suntec – DBS

Year of Stability

• 2009 topline supported by resilient office and retail income
• Strong, diversified portfolio
• Near term refinancing concerns removed
• Buy with TP $0.97
Year of stability. The main message that emerged from the meetings was that FY2009 would be a stable year. Topline would be supported by positive office rental reversions and stable retail rental receipts. This would more than offset the slight dip in overall occupancy to 97.4%.
Weaker office rents offset by steady retail rents. Office rents are expected to continue sliding but the pace of decline will decelerate as observed in 2Q09 vs 1Q09. Shadow space at Suntec Office Tower is not as prevalent as some of the nearby buildings as only a third of its tenant mix is from the finance sector. With expiring rents averaging $6.64psf/mth, lease renewals are likely to remain positive in FY09, although at smaller reversion gaps than before. The anticipated opening of 2 new Circle Line MRT stations from mid 2010 is expected to improve Suntec Mall’s accessability. Planned AEI, to be largely funded by the management committee (MCST), will smoothen traffic flow. Interest expense is expected to rise by FY10 when the new refinancing cost kicks in. More importantly, near term debt maturity risks have been removed.
Maintain Buy, TP $0.97. We continue to like Suntec for its healthy balance sheet with gearing of 34%, well spread portfolio and lack of near term refinancing risks. Valuation is inexpensive with DPU yield of 12.1% and 10.4% for FY09 and FY10 respectively, even after assuming a 50% peak/trough decline in office rents and 15% office vacancy level, and P/bk NAV of 0.44x. Our sensitivity analysis indicates that gearing would rise to 45% with a 25% asset devaluation portfolio-wide. The probability of this happening is low, with 40% of its portfolio value exposed to more stable retail assets.
July 13, 2009 Suntec No Comments »

REITs – CIMB

Investment summary

• S-REITs have rebounded by 56% from March low, in line with 60% for the STI. The S-REIT sector has rebounded strongly from its all-time low in Mar 09, attributed to a strong inflow of foreign funds. Correspondingly, yield expectations have abated from an all-time high of 17% to 11%.

• Recapitalised; refinancing concerns largely averted. REITs have gone beyond the successful refinancing of debt to recapitalisations in a bid to strengthen their balance sheets for the recession ahead. Sponsor-backed REITs including Ascendas REIT, CapitaMall Trust, CapitaCommercial Trust, Starhill Global, and Frasers Commercial Trust went to the market and raised a combined S$3bn of equity. Average asset leverage for REITs under our coverage has retreated to 32% from 35%. Interest cover also appears healthy at 4.5x vs. the typical lenders’ requirement of 2x. We consider balance sheets to be relatively healthy.

• Positioned for a recovery. The larger environment looks positive for investing in REITs, underpinned by: 1) expected high liquidity and low interest rates; and 2)the Singapore government’s continued support for the REIT industry.

• We are most optimistic on hospitality and retail sub-sectors, which we believe will be major beneficiaries of the following in 2010: 1) the completion of the two integrated resorts (IRs); 2) a change in the marketing of Singapore as a standalone destination for tourists; 3) an expanded transport infrastructure with more rail lines; and 4) the anticipated return of corporates and expatriates as Singapore grows more cost-competitive against its regional peers.

• Neutral on industrial sub-sector. The outlook for both the manufacturing and logistics industries remains weak, and we expect the businesses of industrialists in factory and warehouse space to be under pressure. We expect occupancy for industrial space to lag behind the actual slowdown in industrial businesses, holding out the downturn for industrial properties for longer.
• Negative on office sector. We expect occupancy to hold up with the return of corporates as Singapore grows more cost-competitive vis-à-vis the region. However, rents are expected to remain under pressure from three continuous years of strong potential supply and shadow space.

• Overweight on S-REITs; top picks are Suntec REIT and CDLH-HT. We retain our Overweight position on REITs. Our top picks are CDL-HT and Suntec REIT on the back of their lower valuations and near-term catalysts. Dividend yields are also attractive at 9% and 10% respectively. CDL-HT’s Singapore concentration makes it the best proxy for a tourism revival in Singapore. Suntec REIT’s Suntec City Developments (87% of gross revenue) is the closest sizeable retail cluster to the Marina Bay Sands IR and one of the major beneficiaries of two MRT stations opening next to it. We also have Outperform ratings for FCT, ART, PLife, and CREIT.

Link – Table
July 10, 2009 REIT No Comments »

MIREIT – SGX

MacarthurCook Industrial REIT (“MI-REIT”)

MacarthurCook Investment Managers (Asia) Limited (“the Manager”), the Manager of MI-REIT refers to the SGX announcement made yesterday (Announcement titled “MacarthurCook Board to recommend increased offer from AIMS”).

MacarthurCook Limited is the parent company of the Manager.

The Manager wishes to assure unitholders that the AIMS offer does not represent an offer to acquire units in MI-REIT nor does it directly impact the current operation of MI-REIT.

July 10, 2009 AIMSAMPIReit, MI-REIT No Comments »

PST – OCBC

No respite yet

Container market continues to struggle. A new Drewry Shipping Consultants’ report projects a 10.3% market contraction in global box traffic over 2009, and a small 1% growth next year. It estimates that 27m fewer TEUs will be handled for the year than in 2007. Drewry also says “continued unsustainable freight rates” are pushing smaller companies to the brink of financial collapse. The head of Maersk Line said in an interview last week that growth in shipping volumes in 2010 is unlikely – he expects capacity utilization in the industry to fall further over the next 12 months1 . July is a key month as some major liners implement widely publicized rate increases. Trans-Pacific carriers have also proposed rate hikes starting August to bring freight rates back to ‘compensatory levels’. It remains to be seen if these increases take hold in the broader market.

CSAV uncertainties remain. Pacific Shipping Trust (PST)’s negotiations with its charterer, CSAV, have yet to be formally resolved. CSAV won concessions from other ship-owners in late May. According to Lloyd’s List, charter rates for 85 vessels will be cut by 36% for two years with the owners accepting half of the cash equivalent of the rate reduction in terms of shares in CSAV. It is unclear whether a renegotiation with PST, which has two vessels chartered out to CSAV, would parallel this deal or take another shape entirely. CSAV has also raised US$145m in new equity with the sale of more than 300m new shares in the company. Counterparty risk of default (on CSAV) has certainly moderated and we are more sanguine about how negotiations play out. Nonetheless, the devil is in the details and there is no guarantee that the ultimate deal will be equally favorable to both sides. The reaction of PST’s lenders to any concessions granted is also an unknown.

Valuation. PST faces uncertainty on two fronts – the CSAV renegotiation and a sickly container industry. Industry concerns are a deeper and likely more protracted overhang on PST in our opinion. Current price levels present deep value but with little evidence of an imminent industry turnaround, we think it is presumptuous to turn buyers. We bump our fair value estimate up to US$0.24 from US$0.16 to reflect moderated risks on the renegotiation. This represents a 30% discount to our ‘normal’ case discounted FCFE value of S$0.34 (10% discount rate). Our estimates (which assume a 30% cut in charter rates to CSAV) are unchanged. Maintain HOLD.

July 10, 2009 PST No Comments »

Suntec – CIMB

Retail catalysts

• Maintain Outperform. We believe there is room for upside surprises from SUN’s retail segment, from a higher catchment population after the opening of two new MRT stations at Suntec City, and direct linkage to the Marina Bay integrated resort. Additionally, Chinese and Indian tour agencies are starting to market Singapore as a single tour destination over their traditional marketing of Singapore as a stop-over destination. This change should have a significant impact on the length of visitors’ stay in Singapore, and hence retail spending.

• Supply overhang in office; but cost-competitiveness also increases. New office supply of 9.8m over the next five years as well as 400,000-600,000 sf of potential shadow space from 2010 is likely to depress a rental recovery. On the other hand, this development should also improve Singapore’s cost-competitiveness vs. its regional competitors, Hong Kong and Tokyo. We expect continued low rents to support occupancy. A pick-up in leasing volumes in recent months is a sign that occupancy could turn out less depressed than expected.

• DDM-derived target price of S$1.07 (discount 9.4%). We like Suntec REIT for its: 1) quality office and retail portfolio; 2) low leverage of 34.4%; 3) absence of refinancing concerns until 2011; and 4) severely discounted price for a possible fall in asset values. We believe that downside risks for the office sector have been factored into its share price while upside surprises from its retail segment have largely been neglected.

July 8, 2009 Suntec No Comments »