Author: tfwee
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.
MMP – Nomura
MM PRIME, nomura remains STRONG BUY with target price $1.54 (from $1.52)
Cambridge – SGX
CAMBRIDGE INDUSTRIAL TRUST ACQUIRES 1 JOO KOON CRESCENT AND 23 WOODLANDS TERRACE FOR A TOTAL OF S$29.208 MILLION
1. Cambridge Industrial Trust Management Limited (the “Manager”), the Manager of Cambridge Industrial Trust (“CIT”), has identified 1 Joo Koon Crescent and 23 Woodlands Terrace (the “Properties”) to be acquired by CIT at a purchase price of S$13,800,000 and S$15,408,000 respectively (collectively known as the “Acquisitions”).
2. In connection with the Acquisitions, RBC Dexia Trust Services Singapore Limited, as trustee of CIT (the “Trustee”), has entered into separate conditional put and call option agreements (the “Option Agreements”) with Yeow Heng Industries Pte Ltd (“Yeow Heng”), and Metform Industries Pte Ltd (“Metform”) respectively, to acquire the two Properties.
3. The Acquisitions are expected to be financed by debt or alternative funding sources in line with the Manager’s capital management strategy in optimizing the funding of the Trust. The above Properties will be accretive to CIT’s distributable income.
4. Information On The Properties (Extracts)
1 Joo Koon Crescent
– Purchase Price: S$13.8 million
– Lease Term: 11 years with 7% rental escalations on the commencement of the fourth, seventh and tenth year.
– DPU Impact: +0.0317 cents
23 Woodlands Terrace
– Purchase Price: S$15.408 million
– Lease Term: 7 years with 5% rental escalations on the commencement of the third,fifth and seventh year. The tenant has an option to extend for another term of 7 years.
– DPU Impact: +0.0317 cents
DPU Impact : Based on simple annualisation on the audited results for the financial period ended 31 December 2006 and the assumption that CIT had purchased, held and operated the respective property for the same annualised period based on long term gearing ratio of 40%.
Source : SGX