MCT – Lim and Tan
• Citigroup, the stabilization manager bought 2,270,000 shares between 85.5 cents and 86 cents each yesterday (23 May ’11).
• Since 27 Apr ’11 till date, they have bought back a total of 16.78mln shares from low of 85.5 cents to high of 88 cents, representing 16.53% of their total allowable quota of 101.509mln shares.
• Unfortunately, their stabilization efforts will have to cease on 27 May ’11, one month after the public trading of the stock.
S-REITs – DMG
Safer bet in uncertain times
Rising in flation, low interest rate, and economic uncertainties are boon to S-REITs. Rising food, transport, and housing costs are likely to keep inflation high for a while in Singapore which saw CPI rose 5.2% YoY in 1Q11. With high inflation, S-REITs stand to gain from 1) rising spot rents, and 2) higher valuation of underlying properties. On the other hand, low interest rate environment (3m SIBOR: 0.4%) in Singapore, coupled with global economic uncertainties amidst unresolved issues caused by the global financial crisis, have resulted in reduced risk appetite. Given that S-REITs offer attractive dividend yield of 6.9% and inflation-protection features, we are OVERWEIGHT on the sector.
Rising spot rents to cushion negative rental reversion of office space, and raise positive rental reversion for others. Spot rents of industrial, office, and prime suburban retail space, have been rising sequentially for four consecutive quarters since 2Q10. We believe spot rents of non-residential properties, with the exception of urban retail space, will continue to rise further, underpinned by strong Singapore economy estimated to grow 5-7% YoY in 2011. Riding on the improving spot rents, S-REITs are set to enjoy better rental reversions, except for office REITs which are experiencing negative rental reversion in 2011.
Increasing tourist arrivals and high hotel occupancy to boost Average Daily Room Rate (ARR). Singapore’s tourism industry is set for multi-year boom with tourist arrivals projected to grow at 7.9%/year during 2010-2015 to hit 17m. This has resulted in high hospitality occupancy rate of 86% in 2010 (+9.8ppt YoY). We believe Singapore’s hospitality sector will continue to benefit from the strong tourism growth as a result of high occupancy rate and rising ARR.
Top picks are retail and hospitality REITs. We favour retail REIT with prime suburban exposure due to strong positive rental reversion as well as its defensive nature. Our top pick is Frasers Centrepoint Trust (FCT SP; BUY; new TP: S$1.77). On the hospitality front, we favour CDL Hospitality Trusts (CDREIT SP; BUY; TP: S$2.46) to benefit most from Singapore’s tourism boom.
A-REIT – OCBC
A-REIT tops bid for site at Fusionopolis
Highest bid for Fusionpolis Link. A-REIT has submitted the highest bid of S$110m for a site at Fusionopolis to develop a business park. The public tender for the 6,253 sqm site at Fusionopolis Link by industrial landlord JTC Corp, which was launched on 28 Feb and closed on 20 May, attracted seven bids. The site, which lies within the 200-hectare one-north development housing research facilities and business parks, has a 60-year land lease and is on the confirmed list of the government’s industrial land sales programme for 1H11. It has a maximum plot ratio of four and can be developed up to 160 metres above sea level. The project completion period is slated for 24 months. A-REIT’s bid at S$110 million was 29% above the next-highest bid by Mapletree Trustee Pte Ltd and more than doubled the bids by Soilbuild Group and Cambridge Industrial Trust, respectively.
Development plan. If awarded the site, A-REIT will develop a suburban business facility of 25,000 sqm GFA comprising 60% business park space and 40% office space to cater to prospective tenants in the ICT and media industries as well as R&D activities in physical science and engineering. The strategic location of the site will also reinforce A-REIT’s presence and market share within the business & science parks segment while achieving economics of scale in operations.
Maintain HOLD. According to A-REIT, the total development cost of the property is not expected to exceed 3.3% of its deposited property (S$5.4b) as at 31 Mar. With land acquisition cost of S$110m, this works out to approximately S$68.8m of construction costs (or S$2,752 psm) in the worst case or total development cost of S$7,150 psm. On a GFA psm basis, AREIT’s recent acquisition of Neuros & Immunos (already developed), completed on 1 Apr, cost S$3,400 psm. This is at a 23% discount to A-REIT’s land parcel bid price of S$$4,398 psm for Fusionpolis Link. We also noted that another commercial site in the vicinity at North Buona Vista Drive, won by Ho Bee Developments on 5th Aug 2010, cost S$3,684 psm then. Based on these deals, A-REIT’s bid price may be on the high side. Nonetheless, A-REIT has additional debt headroom of S$434m before hitting the 40% gearing level as at 31 Mar. This gives it more than sufficient fund to develop this project. Pending the final award of the tender, we have not yet factored in contributions from the new site in our valuation. Maintain HOLD with an unchanged fair value S$2.04.
CLT – OCBC
Completion of Penjuru Lane asset
Completion of Penjuru Lane acquisition. Cache Logistics Trust (CACHE) announced on 12 May that it has completed the acquisition of 4 Penjuru Lane for S$8.9m. 4 Penjuru Lane is a 55,000 sq ft single-storey warehouse approved for chemical and dangerous goods storage with an extended 2-storey office annex. It is located within the established Jalan Buroh/Penjuru area, a key logistics hub that enjoys close proximity to the PSA Terminals, Jurong Port, Tuas checkpoint and at least half of the container yards in Singapore. The achieved plot ratio of 0.63, compared to the maximum allowable plot ratio of 2.5 under the zoning for the land, offers the potential to enhance and/or redevelop the premises to capture residual plot ratio in the future.
Lease Information. 4 Penjuru Lane will be leased back to Kim Heng for three years, with an option to extend for a further three years. The lease agreement provides for built-in rental escalation of 2% per annum. While this provides a 50bp stepup vis-à-vis the existing lease structures, we reiterate that it still pales in comparison with the Singapore’s 1Q11 CPI of 5.2% and MAS FY11 forecast of 3%-4%. The acquisition will be fully debt-funded. We have assumed a NPI yield on cost of 7.75% for this asset and it will propel CACHE’s gearing from 26.4% as at 31 Mar to approximately 28%.
Reiterate BUY. We applaud CACHE’s efforts to diversify away from its sponsor with yet another third-party acquisition. In our previous reports, we noted that previous CACHE’s properties are on long-term master-leases (at least 5-years) to its sponsor (CWT) and CWT’s parent (C&P), which manifests as a counterparty risk. The sale and leaseback arrangement with Kim Heng for 4 Penjuru Lane certainly helps to spread out the lessees. We also like the shorter lease expiry period (3 years), which will better position CACHE in a rising rental market. In addition, we noted that CACHE is actively seeking quality acquisitions in Asia Pacific. We look forward to more property additions ahead not only to diversify CACHE’s tenant base, but also to reduce its concentration risk on a single asset (CWT Hub which still account for 46.8% of FY11 gross revenue following the acquisition). Concentration and inflation risks remain our top concerns for the trust and we expect management to consciously address these as the REIT grows in asset size. Reiterate BUY with an increased fair value of S$1.05 (prev: S$1.04).
A-REIT – DMG
Tender for Business Park Site at Fusionopolis
S$110m bid for Fusionopolis under Government Land Sales programme. Ascendas REIT (A-REIT) has submitted bid for a 6,253sqm site at Fusionopolis within the one-north master plan region. Should A-REIT successfully win the bid, it will develop the site into a modern suburban business facility of 25ksqm GFA, comprising 60% business park space and 40% office space to cater to prospective tenants from IT and Media industries, as well as R&D activities in Physical Science and Engineering. We view A-REIT’s tender positively as this will strengthen A-REIT’s leadership position in the Business & Science Parks segment. We will only factor in contributions from this site when 1) more details are revealed, and 2) A-REIT successfully wins the tender. Maintain NEUTRAL with unchanged TP of S$2.00.
Close proximity with other A-REIT’s properties. The location of the site is ideal for tenants given its close proximity to 1) One North MRT station which will be operational in 4Q11, and 2) easy accessibility via the Ayer Rajah Expressway. In addition, its close proximity to A-REIT’s existing properties within the one-north region and Science Parks I & II will bring about economies of scale in operations. Based on proposed GFA, the current site at Fusionopolis is valued more dearly at ~S$4.4kpsf vs S$3.4kpsf for Neuros & Immunos acquisition announced in Mar 2011. Including this latest bid, A-REIT will be undertaking five development projects in the next two years.
More deals in the pipeline. We believe there are more deals in the pipeline for A-REIT which mentioned that it is currently in discussion on a potential acquisition worth S$200m. The outcome of the potential acquisition should be known in the next 3-6 months. In addition, based on its total asset as of end Mar 2011, we estimate A-REIT has a debt headroom of ~S$540m assuming maximum gearing of 45%. Armed with a healthy balance sheet, we believe AREIT will have the advantage of being able to respond quickly towards acquisition and development project opportunities.