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.
MLT – BT
MapletreeLog prefers natural hedging
GIVEN the strength of the Singapore dollar, investors of Mapletree Logistics Trust (MLT) were keen to know more about its currency hedging policy, says Citigroup after hosting MLT on a non-deal road show in Europe.
‘Natural hedging remains its (MLT’s) preferred hedging strategy with local currency loans set up to offset currency fluctuations,’ commented Wendy Koh from Citigroup.
Ms Koh added that MLT has also hedged its exposure to the Hong Kong dollar, Japanese yen, Malaysian ringgit, and Korean won, resulting in 89 per cent of its amount distributable being hedged for FY2011. Other aspects that drew investors’ attention also included the impact of Japan’s recent earthquake on MLT assets.
Notably, only one of MLT’s 15 properties in Japan was damaged by the earthquake. With regard to the costs required to rectify the damaged property, the logistics real estate investment trust (Reit) guided that it should come in at about $3 million as opposed to the $9 million previously estimated.
On a more macro level, things have been looking good for the Reit as demand for logistics space has been robust, especially in Singapore and Hong Kong as occupancy rates improve.
In addition, rental reversions came in higher, up 5 per cent versus one to 2 per cent in the past.
With regard to future plans, MLT highlighted that it intends to adopt an acquisition strategy to focus on yield optimisation and growth. To jump-start this strategy, MLT’s lower yield assets are being divested to fund acquisitions of properties which generate higher returns.
Asset enhancement initiatives also seem to be on MLT’s cards as management continues to evaluate and identify properties for such purposes.
Citigroup currently has a ‘buy’ recommendation on MLT with a target price of $1.00. Yesterday the stock closed one cent higher at 91 cents.
Starhill Global – DBSV
Store of opportunities
• 0.7x P/NAV ratio is attractive vs commercial peers
• Multi-prong growth: organic expansion, asset enhancement exercises and acquisitions
• Maintain BUY and S$0.73 TP
More value in store. We are retaining our Buy call for SGReit following updates from management and the HK NDR. SGReit’s unique value proposition lies in its prime retail offering and niche office exposure along the Orchard Rd belt. FY11-12F yields of 6.9%-7.3% imply attractive 280bps spread over the risk free rate, backed by the top class commercial assets in town and a reputable sponsor. There is good earnings visibility going forward, led by organic growth potential and proactive asset enhancements. At current valuations of 0.7x P/book NAV vs its commercial peers’ 0.8–1.3x, valuations are attractive. At S$0.73 target price, the stock offers 23% total return.
Stronger organic growth. Earnings growth will be driven by (i) positive rental renewals from two master tenants, Toshin and David Jones, which contribute a quarter of its portfolio revenue. Toshin’s lease reversions are capped at 25% above preceding levels, but we conservatively imputed only 10% despite 20% adjustment in the last cycle. For David Jones, we expect 6%-8% rental hike; (ii) robust outlook for Singapore’s commercial industries along with stronger tourist arrivals, which should have a knock on effect on portfolio performance; and (iii) proactive asset management exercises e.g. reviewing tenancy mix at Wisma Atria, to enhance shoppers’ experience and footfall.
Optimising yields, growing portfolio. SGReit will spend c.S$41m to create more prime space at Wisma Atria and Starhill Gallery, and is targeting 7-8% IRR within the next few quarters. Despite the small impact, we are encouraged by its efforts to create more value for unitholders. Gearing remains low at 30% with no refinancing requirements this year, placing it in good position to make acquisitions.