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
Suntec – UOBKH
Selling of Shares by Substantial Shareholder
75.1m shares offered by Lee Shau Kee. Substantial shareholder of Suntec REIT and chairman of Henderson Land Development, Lee Shau Kee has sold his entire stake of 5.27% or 75.1m shares of the trust for S$1.995 to S$2.04 each, generating S$153m. The share sale, managed by Citigroup, resulted in a dip in share price of 4.4% to S$1.97 yesterday. We believe that the sharp drop in share price reflects a shake-up of unitholders’ confidence in the stock.
Catalyst diluted by impact of deferred units. Key driver for the stock will come from rental reversions of its Suntec City and Park Mall offices. However, the impact will be diluted by its 207m deferred units issued at IPO, which will start in Jun 08 through six equal semi-annual payments of S$34.5m each. In addition, we do not foresee any significant asset enhancement programs this year as it is scheduled to complete its Suntec City enhancements by this end of this month. We also believe that any contribution from enhancement of Park Mall will
pale in comparison to Suntec City.
Maintain HOLD, fair value S$2.31. Previously, we have initiated the stock with HOLD when the share price was trading at S$2.09. With the more attractive current share price of S$1.97, investors who are more bullish on the stock may want to do a trading buy to take advantage of the share price weakness. However, we believe that the fundamentals remain, and this price weakness may be only short term, consequent to the share sale which has shaken unitholders’ confidence. Therefore, we maintain HOLD on the stock with a fair value of S$2.31.