Author: tfwee
Cambridge – SGX
COMPLETION OF THE ACQUISITION OF 28 SENOKO DRIVE AND DP COMPUTERS BUILDING LOCATED AT 128 JOO SENG ROAD FOR A TOTAL SUM OF S$22.0 MILLION.
1. Cambridge Industrial Trust Management Limited (the “Manager”), the Manager of Cambridge Industrial Trust (“CIT”), is pleased to announce the completion of the acquisition of two properties with a combined acquisition value of S$22.0 million. 28 Senoko Drive, Singapore 758214 was acquired at a purchase price of S$12.0 million while DP Computers Building located at 128 Joo Seng Road, Singapore 368356 (collectively known as the “Properties”) was acquired for S$10.0 million on 25 June 2007.
2. On 25 June 2007, RBC Dexia Trust Services Singapore Limited as trustee of CIT (the “Trustee”) exercised the put and call option agreement dated 25 April 2007 with Tat Seng Packaging Group Ltd (“Tat Seng”) for the purchase of 28 Senoko Drive. On the same day, the put and call option agreement dated 9 April 2007 (collectively known as the “Option Agreements”) with DP Computers Pte Ltd (“DP”) was also exercised by the Trustee for DP Computers Building.
3. Pursuant to the exercise of the respective Option Agreements, the Trustee signed and completed the sale and purchase agreements for the two Properties respectively.
4. The purchase price and other acquisition-related costs of the Properties are fully funded by debt.
5. 28 Senoko Drive – Located along Senoko Drive, the Property is a single-storey industrial cum warehouse facility with a four-storey ancillary office building. It has a gross floor area of 14,803.0 sq m, and is built on a land area of 20,070.9 sq m. The land has a leasehold title of 30 years commencing from 16 December 1979 with an option for further term of 30 years. The Property will be leased back to Tat Seng for 15 years with an option to renew for a further term of 5 years upon the completion of the sale and purchase. The rent escalation of 7% will commence at the beginning of the fourth, seventh, tenth and thirteenth years.
DP Computers Building – Located at the junction of Joo Seng Road and Kampong Ampat, the Property is a seven–storey light industrial building. It has a gross floor area of 8,626.0 sq m occupying a land area of 3,458.4 sq m. The land has a leasehold title of 30 years with effect from 1 May 1992 with an option for a further term of 30 years. DP and Seng Huat Packaging Pte Ltd will jointly leaseback the Property for 7 years with an option to renew for a further term of 3 years. The rent escalation of 5% will commence at the beginning of the third and fifth years.
Source : SGX
A-REIT : UOBKH
Quasi-Office Play
Ascendas Real Estate Investment Trust (A-REIT) is our top pick in the industrial segment in view of its quasi-office play. With industrial rents being significantly lower than office rents, A-REIT’s high-growth assets (business parks and hi-tech industrial space) are quality alternative solutions for limited office space.
Key beneficiary of strong spillover from office demand. A-REIT’s portfolio, with business & science parks making up 20.1% and hi-tech industrial space 24.2%, is valued at more than S$1.4b. This makes A-REIT a key beneficiary of the spillover from office demand for the next 2-3 years. Also, most leases in the business & science parks (73.9%) and hi-tech industrial (64.6%) segments are on a short-term basis, so A-REIT can ride on the upward rental reversions.
Acquisitions still the key driver. A-REIT’s aggressive acquisition trail will be the key growth driver. A-REIT is on track to reach its target of S$5b worth of investment properties by end-2010. Although management plans to focus on the domestic market in the short term, it can also tap on parent Ascendas’ operational experience in India and China for overseas exposure in the longer term. A-REIT will be a likely exit option for properties under the various funds in which Ascendas has a stake, including Ascendas India Development Trust and Ascendas India IT Parks Fund. Management estimates every S$100m worth of acquisitions at the current capitalisation rates would translate into a 10-cent rise in DPU.
Development projects to lift yields. In 2006, A-REIT pioneered two warehouse-retail developments: Courts Megastore and Giant Hypermart. Such development projects could lift yields by 1.5-2% and double the DPU of acquisition projects, although with a longer time lag. The company is also undertaking other development projects, namely HansaPoint @ Changi Business Park, Zuellig Pharma and Goldin.
Re-iterate BUY, revised target price: S$3.13. Based on our new WACC assumptions, we re-iterate BUY and revise our target price from the previous S$2.87 to S$3.13, implying an upside of 11.1% and total return of 17.6%. Other earnings surprises could come from asset-enhancement activities to maximise plot ratio and occupancy rate improvements.
Suntec – UOBKH
Limited Upside From Dilution Impact
Suntec REIT has 56% exposure by net lettable area (NLA) to the office segment, and the rest in retail. Its portfolio includes three properties: Suntec City, Park Mall and Chijmes.
Key driver from office segment. Suntec REIT will ride on the upside of rental reversions for both the office and retail segments. Majority of Suntec REIT’s office leases are expected to expire in FY08 and FY09 (32.6% and 40.4% of NLA respectively). While decent retail rental renewals are expected, retail rental reversions generally increase at a lower rate than office rentals. In addition, asset enhancements of Suntec City Mall are near completion except for the Fashion Zone at Galleria scheduled to complete by this month. This leaves little room for Suntec REIT to do yield enhancements if it does not acquire additional assets, except for Park Mall which pales in impact to Suntec City where comparison with yield is concerned.
Dilution impact from deferred units. Suntec REIT will encounter dilution impact from their 207m deferred new units issued at IPO, which will start in Jun 08 through six equal semi-annual payments of S$34.5m each, and the deferred units are not subjected to any lock-up period.
Formula 1 to affect retail sales. With the Formula 1 race to be staged in Singapore in 2008-12, we expect retail sales in Suntec City to suffer as safety requirements to barricade the street circuit will obstruct access to the mall.
Initiate with HOLD, fair value: S$2.31. We initiate coverage of Suntec REIT with HOLD and a fair value of S$2.31, implying an upside of 10.4% and a total return of 14.33%. In deriving our fair value, we have factored in the full dilution impact from the deferred units. We suggest entry at S$2.00.
K-REIT : UOBKH
Smallest But Purest
Among the office REITs under our coverage, K-REIT Asia (K-REIT) is the smallest in terms of asset size (S$677m). It is, however, a pure office play consisting of four quality office buildings: Prudential Tower (44%), Keppel Towers, GE Tower and Bugis Junction Tower.
Strong rental reversions as key growth driver. With its portfolio consisting of purely prime office assets, K-REIT will benefit from strong rental reversions with its substantial and increasing lease expiries till at least 2010. Lease expiries for 2008-2010 are 14.3%, 24.8% and 27.6% respectively. Committed portfolio occupancy levels have already hit a high of 99.4%. Despite limited upside from occupancy enhancement and little likelihood of any asset-enhancement programmes, we believe upside from rental revisions will drive the stock.
DPU upside from acquisitions. Management has targetted acquisitions of S$2b within the next few years, with initial focus on Singapore because of the great growth potential in the office segment here. In the long term, however, it has a Pan-Asian commercial mandate for its investment portfolio. Its acquisition target of S$2b is achievable for a few reasons: a) K-REIT has been inactive in terms of acquisitions since it was initiated, and b) its parent Keppel Land, whch owns a number of quality office assets, might inject these assets into K-REIT for an assetlight structure.
Initiate coverage with BUY; target price: S$3.39. We initiate coverage of K-REIT with BUY at a target price of S$3.39, implying a 15.9% upside and a total return of 18.4% based on our DCF model. With the recent share price weakness, this is a good opportunity to accumulate the stock. We are conservative on K-REIT’s acquisitions and factor in only about S$150m p.a. in view of risks of delay in its acquisition schedule, in part due to the difficulty of acquiring high-yield assets.
CCT – UOBKH
More Than An Office Play
With the largest portfolio of prime office properties in Singapore, CapitaCommercial Trust (CCT) has the highest exposure to the Singapore office segment. Its portfolio also consists of office and business park properties in Malaysia through a 30% stake in Quill Capital Trust (QCT) and a 7.4% stake in Malaysian Commercial Development Fund.
Strong rental reversions to drive DPU. CCT will benefit from substantial office lease renewals in the next few years. 70.8% of its portfolio comprises office assets. Of these, 74.6% will see their leases expire between now and FY09. We expect strong positive rental reversions to drive its DPU. Asking rents for 6 Battery Road is already at a high of S$17.5 psf pm, and that the momentum will last well into FY09.
Retail yields to improve from Raffles City asset enhancement. CCT will begin its RCS phase 1 AEI works in 2Q07, which are scheduled for completion by 4Q07. This will add 41,000 sf (+12%) of net lettable area (NLA) and increase net property income (NPI) by S$7.0m p.a. following an increase in average rentals from S$14.55 psf pm to S$15.05 psf pm. Phases 2 and 3 will add another 0.15m-0.2m sf of NLA with the creation of retail space at Basement 2 and 3, with direct access to City Hall MRT station and the new Esplanade MRT station. Estimated net increase in monthly rents for the increased retail NLA is S$10.00-15.00 psf, contributing to a net increase in NPI of S$12.6m-25.2m and yielding an ROI of 20-29%.
Aggressive acquisition trail not without risks. CCT will likely stay focused on office as it targets to grow its asset size to S$5.0b-6.0b by FY09, with QCT as its preferred vehicle for exposure to Malaysia. QCT intends to double its portfolio to RM500m from RM276m by end-07 with the injection of four new assets. Key risk, however, arises from the difficulty of acquiring yield-accretive office assets amid keen competition going after high capital values, which results in lower yields. This could be the fundamental reason for CCT to look to China for potential acquisitions. Also, CCT’s unsuccessful offer for Temasek Tower may suggest limited leverage on its parent CapitaLand for potential yield-accretive injections.
Initiate with BUY; target price S$3.72. We initiate coverage of CCT with BUY at a target price of S$3.72, implying a 17.0% upside and a total return of 23.9%. We factor in acquisitions of S$500m-800m p.a. to reach an investment portfolio size of S$5.6b by end-09.