Month: June 2011
SREITs – BT
Stable outlook for S-Reits: Moody’s
CREDIT rating agency Moody’s Investors Service has maintained its stable outlook on real estate investment trusts in Singapore (S-Reits) over the next 12-18 months, on expectations of rising rents and loose credit conditions.
That many rated S-Reits carry investment-grade ratings ‘reflects issuers’ relatively stable operating incomes, high-quality assets, and low development risk’, said Moody’s analyst Alvin Tan in a report yesterday.
Moody’s expects Singapore’s economy to expand by 6.3 per cent this year, which should lead to increasing rental rates and high occupancies.
It noted, however, that the rate of rental hikes could be slower than that previously. This year’s economic growth is likely to pale in comparison to last year’s 14.5 per cent and a supply of new properties will also be coming onstream.
‘In our base case assumptions, we expect rental rates in the suburban retail and industrial segments to remain stable in 2011 and 2012, due to Singapore’s moderate economic growth and these rentals’ relative stability during the last economic downturn,’ Mr Tan said. In contrast, rents for the urban retail and commercial segments are expected to be more volatile, he said.
Apart from rising rents, a benign environment for refinancing will also benefit S-Reits, Moody’s noted. There is ample liquidity in the market and strong backing from sponsors for most S-Reits, Mr Tan said, adding that Moody’s expects interest rates to continue staying low this year.
He pointed out that most S-Reits have kept leverage in the 30-40 per cent range, which still compares favourably with their higher long-term targets of 40-45 per cent. Moody’s expects S-Reits to continue making acquisitions, funding these with a mix of debt and equity, while maintaining gearing within targeted limits.
‘We view industrial S-Reits, such as A-Reit (Ascendas Reit) and MLT (Mapletree Logistics Trust), as more likely to pursue growth by acquisition, because industrial properties have lower transaction values and higher yields compared to other asset classes,’ Mr Tan said.
‘By contrast, S-Reits focused on office properties continue to face challenges in finding yield-accretive properties due to high asking prices and low yields in this segment of the market.’
TCT – BT
Treasury China allays fears over supply glut
Trust upbeat on office, retail rentals, citing strong demand in China
TREASURY China Trust (TCT) expects further upside in office and retail rental rates on the back of strong demand in China and dismisses concerns over a potential office supply glut in Shanghai raised by a brokerage report.
TCT chief executive Richard David said the group is looking at 10-12 per cent rental price growth this year, similar to the growth pace in the past three years.
A 21 per cent rise in Shanghai’s Grade A office rents projected by Jones Lang LaSalle in a report late last year also looks achievable.
‘Based on transactions that we have done in the first half of this year, we don’t think this is an unrealistic number,’ Mr David told BT.
‘What we are seeing over the last 12 months in our portfolio is stronger rental growth, so as we are headed for the next 12-24 months, there are leases up for renewal and I think we are in a very good position.’
A recent report by Phillip Securities cited office supply glut in Shanghai as the main threat to TCT, given that one million square metres of new office supply is expected to come onstream this year – about three times the average historical annual supply.
Apart from concentration risk in Shanghai, Phillip Securities also cited higher borrowing costs amid an interest rate hike and credit tightening in China as factors weighing on TCT.
‘These are legitimate questions to answer,’ Mr David said. Fund managers and investors have sought updates from the group since. But there are several mitigating factors, he said.
TCT’s properties are located in the less cluttered district of Puxi, where only 21 per cent of the new office supply are located, he added.
High capital costs and disruptions to business also hold companies back from relocating to new office space.
The bigger risk to TCT, Mr David reckoned, is any major loss of staff to deal with rental renewals effectively.
‘That’s probably more of an issue for me than to worry about the guy who is building 50,000 sq m down the road because he should be worried about us. I’m not worried about him, because I know we have a very compact business structure.’
Mr David also explained that TCT’s borrowing costs is cushioned from the impact of rising interest rates in China, as only 15 per cent of its debt are in yuan and 85 per cent of its debt are US dollar loans.
TCT’s current portfolio comprises Central Plaza, City Center, and Treasury Building in Shanghai Puxi and the 74,000-square-metre development space in Beijing International Logistics Park.
With its Shanghai properties enjoying over 90 per cent office occupancy, the business trust is seeking expansion space for its tenants.
It has also set aside one billion yuan (S$190 million) for acquisitions of retail assets it has identified in Shanghai and Xi’an.
The recent acquisitions of a 55 per cent interest in Central Avenue Mall in Qingdao and a 100 per cent interest in Huai Hai Mall in Shanghai are expected to boost the group’s gross revenue by 15 per cent, Mr David said.
TCT had, in the first quarter ended March 31, achieved gross revenue of $19.45 million, 1.9 per cent above forecast, and a net property income of $12.45 million, exceeding its forecast by 8.6 per cent.
CCT – OCBC
Permission granted to demolish Market Street Car Park
Approval granted for MSCP demolition. CapitaCommercial Trust (CCT) has announced on 16 Jun that it has been granted permission to demolish Market Street Car Park (MSCP) to make way for its new ultra-modern Grade A office tower. The carpark, including its food court and all its shops, will be closed on June 30 and eventually torn down. The new tower is expected to be completed before end 2014.
MSCP redevelopment. Recall that CCT was granted the Outline Planning Permission (OOP) by URA for the redevelopment of MSCP in Jan 2008. However, the project was aborted in Jan 2009 amid the Financial Crisis due to uncertain outlook, tight credit conditions and high development cost and significant size of the undertaking. The OOP was thus allowed to lapse. Subsequently, CCT rekindled redevelopment plans for MSCP and obtained provisional permission in Nov 2010. It will be jointly developing MSCP with its sponsor CapitaLand, with a 40% stake in the JV and capital commitment of S$560m. This constitutes 9.3% of its total assets as of 31 Mar, which is below the stipulated development limit of 10%. CCT will commit S$335m in 2011, and the rest via internal cash resources and debt, keeping pro forma gearing below 31%. The new office tower has a GFA of 887,000 sqft and height of 245m. It will have a towering presence around the area and is likely to be the fifth tallest building in Singapore after OUB Centre (280m), Republic Plaza (280m), UOB Plaza One (280m) and Capital Tower (254m). We have factored in contributions from MSCP starting Dec 2014, with a stabilised NPI yield-on-cost of 6.9% and a modest starting rent of S$14 psf/month. This compares favourably with CCT existing NPI yield in FY10, which is 5.46% according to our estimates.
Reiterate BUY. We are overall positive on the MSCP redevelopment but remain wary that its land lease is only 59 years following the 2014 completion. There is potentially an additional supply of about 1m sqft of commercial space on the reserved list at Marina View (near Asia Square Tower 1 & 2), which was recently announced in the 2H11 GLS programme, with its estimated launched date1 in Oct 2011. We forecast for CCT to continue to experience negative rent reversions in 2011, but this should change in 2012. With its near 100% occupancy and active leasing strategy, CCT stands in a good stead to reap the office rental uptrend for its existing properties, at least in the short to medium term. Reiterate BUY with an unchanged RNAV-derived fair value of S$1.63.
CCT – BT
End of the road for Market Street Car Park
MARKET Street Car Park will be closed for good at the end of this month for demolition and an ultra-modern Grade A office tower will spring up in its place before the end of 2014.
CapitaCommercial Trust (CCT), which has been granted permission to demolish the car park amid concerns of a resultant shortage of car park space in the area, said the 245-metre tall tower to be developed will be an exciting addition to the skyline of Singapore’s Central Business District (CBD). It is expected to have a gross floor area of 887,000 square feet.
Announcing the redevelopment yesterday, CCT said: ‘As a result, Market Street Car Park, including the food court and all the shops, will be closed permanently from 2359 hours on Thursday, 30 June 2011 for demolition.’
The car park, which was built in 1964 and has 704 lots, is one of the major sources of parking space in the Central Business District today.
CCT said that existing season car park holders have already been told since April to start sourcing for alternative car parking and have been provided with a list of alternative car parking facilities in the surrounding commercial buildings.
There has since been ‘a steep decline’ in the number of season car parkers at the car park, said CCT.
BT had earlier reported that owners of some developments near the property had jointly written to the Urban Redevelopment Authority (URA) for a dialogue to address concerns over the supply of parking lots in the area when Market Street Car Park is being redeveloped.
Several buildings in the vicinity have either few or no parking lots, which means that many of their tenants or visitors have hitherto been relying on Market Street Car Park for their parking needs.
Plans for the redevelopment of the car park emerged more than 15 years ago but firmed up only recently. CCT said in April that it will work with CapitaLand to re-build the car park into a Grade A office tower for around $1.4 billion. This includes a differential premium for the change of land use.
LMIR – OCBC
Favorable retail outlook ahead; reiterate BUY
Retail supply. According to Colliers International, no new retail supply entered the market in 4Q10. Retail supply growth throughout 2010 in Jakarta and the greater Jakarta area was the lowest since 2009. With only 0.3% growth, YoY growth was 0.2pp below last year. Limited supply will continue throughout this year. In Jakarta, there will be an additional 89,000 sqm of retail space by the end of 2011 contributed mainly by Kuningan City Lifestyle and Entertainment. Colliers expects another 439,3556 sqm of retail space within the next three years and all of these projected developments are a component within mixed-use developments. Retail supply around Greater Jakarta is projected to be far less than in Jakarta. The limited supply puts LMIR in a good stead to capitalize on growth opportunities arising from the robust economy recovery (Indonesia’s economic growth forecast is 6.9-7.0% for 2011)
Occupancy rates & tenants. Up to the end of 1Q11, the occupancy rate of shopping malls in Jakarta was 85.04%, up 1.77% QoQ. We noted that occupancy rates have been steadily increasing for all regions of Jakarta since 2010. The average occupancy performance around the greater Jakarta area was also relatively stable, with occupancy standing at 82.9%. LMIR’s overall occupancy of 98% as at 31 Mar, compared favorably against these benchmarks. The emerging concept in Indonesia of combining department stores with F&B outlets further boosted shopper traffic and uplifted tenants’ performance. Some of the familiar tenants taking up new leases in Jakarta this year include Mad for Garlic, Marche, Muji, Yamaha Music School, Best Denki etc. In terms of the entry of new tenants, Payless Shoes, a shoe retailer from Kansas of the United States, also opened its first outlet in Indonesia. A giant retailer from Germany, Metro Group, also announced that it plans to invest as much as €300m in the next three years to establish 20 wholesale retail outlets in Indonesia.
Rental rates in Jakarta. There was no increase in rental rate in 1Q11. Strengthening occupancy performance has become more important for shopping malls at present. Retaining existing tenants by providing rents according to the lease agreement and offering reasonable rates for new tenants are common. In 1Q11, the average rental rate was recorded at Rp349,507 psm/mth. Despite showing no increase QoQ, the average rental rate was 1.16% higher YoY. With a population of more than 200 million, a fast-growing economy and strong domestic consumption, Indonesia offers abundant potential for retail business. Likewise for retail landlords, who are expecting rentals to pick up in 2012-2013. We believe LMIR is poised to benefit from the rising mall culture in Indonesia. Reiterate BUY with an increased fair value of S$0.61 (prev: S$0.59).on grounds of favorable outlook ahead.