Category: Suntec
SREIT – Goldman Sachs
Strong Singapore; initiate coverage of 3 REITs, raise CDLHT to Buy
Looking beyond equity offering indigestion
We think a spate of equity offerings plus expectations of more to come in the Singapore REIT space has caused share prices to retreat. As it has become more expensive for REITs to issue equity, we are reducing our projections of contributions from potential acquisitions. But we note that rents across property segments remain strong and are raising our growth projections for hotels. We think SREITs still offer a compelling proposition of defensive characteristics overlaid with growth, organic and through acquisitions.
Focus on Singapore hotels and retail reits
While equity markets are choppy and sentiment in the Singapore residential market has been dampened by withdrawal of the deferred payment scheme, we believe the strong Singapore structural story remains intact. We like organic growth prospects for office, retail and hotel properties. We favor 1) hotels, given strong near- and longer-term prospects we see; and 2) retail, which we view as underappreciated and where rental growth could surprise on the upside. We like acquisition growth prospects of overseas REITs CRCT and AiTrust, but we think much is priced in and favor Singapore-centric REITs.
Initiating three new REITs, upgrading CDLHT to Buy
We initiate on CapitaRetail China Trust (Sell, TP S$2.18); Ascendas India Trust (Neutral, TP S$1.66); and Macquarie Prime REIT (Neutral, TP S$1.24). We upgrade CDLHT to Buy from Neutral on higher FY08/09 RevPAR yoy growth assumptions. We like CDLHT’s leverage to rising Singapore hotel room rates and potential for acquisition growth regionally and in Singapore, where sponsor City Developments has a pipeline of over 1,800 rooms. We are transferring coverage of AREIT, MLT, CDLHT, and ART from Leslie Yee to Paul Lian.
Adjusting target prices for REITs under coverage; focus on quality
We adjust 12-mo. TPs for 9 currently covered REITs by -8% and +20%. We reiterate our Buys on CMT, Suntec, and K-REIT. CMT and Suntec are exposed to Singapore retail and have size and liquidity, which we like in a flight-to-quality environment. Given the rising number of small-cap REITs of varying quality, we would focus on larger REITs with quality assets, good track records, and strong management. Risks: A fall in business and consumer confidence may impact rental reversions.
Office REITs – UOBKH
Office REITs
Cooling off in bidding for office site
Auction for Marina View Land Parcel B located diagonally behind One Shenton has closed with only two bids, reflecting cautiousness for commercial properties due to the sub-prime mortgage crisis in the US. Marina View Land Parcel B has site area of 0.9hectare and can be developed into maximum gross floor area of 1.2m sf with at least 60% utilised for office and at least 25% utilised for hotel.
The top bid from MacQuarie Global Property Advisors came in at S$952.9m or S$779.42psf ppr. This is lower than CB Richard Ellis’ expectation of S$1,200 to S$1,300. Knight Frank has expected bids of between S$1.1b to S$1.3b or S$900 to S$1,060psf ppr. The second bid from CapitaLand came in at S$898m or S$734.52psf ppr. Some industry players are concerned that the latest site may not be awarded because the reserve price may not have been met.
Monthly gross rents of Grade A office space in Raffles Place increased by 18.2% qoq to average at $15.00psf in 3Q07. Capital values of Grade A office space in Raffles Place has also risen 23.8% qoq to an average of $2,416psf (source: Colliers International). K-REIT Asia and Suntec REIT have also recently acquired one-third stakes in One Raffles Quay at S$941.5m or S$2,115psf.
The limited supply of office space coming on stream over the next three years will provide some cushion for office properties. However, the cooling off in bidding for office sites within the Central Business District will have a dampening effect on share price for office REITs such as K-REIT, Suntec REIT and CapitalCommercial.
Suntec – OCBC
ORQ to drive FY08 earnings
Results broadly in line. Suntec REIT (Suntec) reported 4Q07 revenue of S$51.1m; +14% YoY and +9% QoQ. Distributable income was equally strong at S$30.4m; +22% YoY and +1% QoQ. At the DPU level, growth was more moderate at +11% YoY and +1% QoQ to 2.12 cents. Growth was mainly due to the increase in office and retail revenue due to better rates and higher occupancy. However, higher property expenses specifically from higher property tax and property management fees eroded much of the better revenue. This led to NPI margin falling from to 71% from 73% in 3Q07 and 4Q06. The results were about 4.5% better than our estimates.
Revaluation gains of S$1.29bn. In the current quarter, Suntec re-valued its asset and has recognised a gain of S$1.29bn (or 40% YoY). Suntec attributed the bulk of the gains from its office assets. More importantly with the new valuation, Suntec’s gearing has dropped to 20% (from 24% at 3Q07). With a target gearing of 45%, based on its current asset value, Suntec could raise a further S$408m. As for its NTA, it now stands at S$2.20, which means that it is currently trading below book value.
Accretion from ORQ to kick-in in FY08. In a recent release, Suntec has revealed it will finance the ORQ acquisition with 10% equity (to the vendor, Cheung Kong), 48% convertible bond (CB) and the balance 42% straight debt. CB is a new innovative way of financing and one that could be viewed as a form of deferred payment. However, as Suntec has an option to redeem the CB, we consider it as debt. We estimate the average cost of funding of ORQ at about 3.2% and with ORQ NPI yield at 4.2%, we see strong accretion to Suntec in FY08. In light of this we have revised up our FY08F DPU from 8.8 cents to 10.4 cents and we are also introducing FY09F at 10.7 cents. Finally, we estimate the rental from ORQ to be about S$10.5psf/mth and with market rates at S$15psf/mth. So we see upside potential albeit in the middle term.
Maintain BUY and fair value of S$2.18. The investment case for Suntec is simple, strong rental reversions from under rented office space, earnings accretion from acquisitions and retail space to benefit from asset enhancement. More importantly, with a price to book of below 1.0x, we see the investment case for Suntec compelling. We maintain our BUY rating with a fair value of S$2.18.
Suntec – BT
Q4 distributable income for Suntec Reit up 22%
SUNTEC Reit has reported fourth-quarter income available for distribution of $30.4 million, an increase of 22.2 per cent from $24.8 million a year ago.
For the same July 1-Sept 30 period, Suntec Reit recorded gross revenue of $51.1 million, an increase of 13.7 per cent year-on-year. Net property income was up 12 per cent up at $36.6 million while distribution per unit (DPU) was 2.122 cents, up 11.3 per cent.
The Reit’s stake in Suntec City Mall and Office Towers contributes 87.4 per cent of its net property income (NPI) and it reported that Suntec office leases were secured at higher rental rates of between $11 and $13 per square foot (psf) per month, and the committed office occupancy at Suntec City is at 99.8 per cent.
Suntec Reit also reported that the committed retail passing rent at Suntec City Mall hit a new high of $10.46 psf per month.
The Reit, which also owns Park Mall and Chijmes, reported that the passing rents there rose to $6.60 psf per month and $10.68 psf per month respectively.
Suntec Reit also recognised a revaluation surplus of $677.5 million for the quarter after independent valuations of its porfolio was valued at $4.57 billion (as at Sept 30).
On a full-year basis (Oct 1, 2006 to Sept 30, 2007), income available for distribution was $115.4 million, up 21.6 per cent from $94.9 million in the corresponding period a year ago. Net property income was up 11.8 per cent at $140.6 million and DPU was up 11.8 per cent at 8.15 cents.
Based on the closing price of $1.84 on Oct 26, Suntec Reit’s distribution yield was 4.4 per cent, up 11.8 per cent compared to the previous year.
Yeo See Kiat, CEO of Reit manager ARA Trust Management said: ‘On the acquisition front, we have entered into an agreement to acquire one-third interest in One Raffles Quay which will be completed shortly.’
Suntec Reit’s other income revenue from A&P, pushcarts and kiosks for FY07 grew 10.2 per cent year-on-year, surpassing the $6 million mark.
For its current office portfolio, 26.8 per cent of leases are expected to expire next year, with 42.6 per cent expiring the following year.
For its retail portfolio, 30.4 per cent of the leases are expected to expire next year, with 23.4 per cent expiring the following year.
Suntec Reit ended the trading day yesterday at $1.84 per share, unchanged.
Suntec – SGX
RESULTS OF EXTRAORDINARY GENERAL MEETING HELD ON 8 OCTOBER 2007
(a) the proposed acquisition of a one-third interest in One Raffles Quay;
(b) the proposed issue of up to S$450,000,000 aggregate principal amount of S$ denominated
convertible bonds;
(c) the proposed issue of consideration units to the vendor;
(d) the proposed general mandate for the issue of new units and/or convertible securities; and
(e) the proposed supplement to the trust deed in connection with the valuation of real estate,
as set out in the Notice of EGM dated 18 September 2007 were passed by the unitholders of Suntec REIT at the EGM held today.