With the recent drop in long-term yields, interest in REITs could receive a further boost. On top of that, Singapore has been trying to promote REITs. Recently, MAS announced a list of proposals to provide REITs with more flexibility in terms of gearing (increase to 60% and overseas expansion (can take partial ownership) while at the same time encourage more disclosure (on tenants, leases, etc).
Overseas expansion: The next step. While the Singapore-listed REITs with the exception of Fortune REIT (Hong Kong-based assets) have all their assets in Singapore, the potential to drive DPU growth via acquisitions and asset enhancement is getting slimmer. Overseas expansion will thus be the next growth catalyst and CCT, CapitaMall Trust and A-REIT are best positioned for that move.
A-REIT looks the best. Fortune has the highest yield among all the REITs and Suntec REIT has the highest yield among the Singapore-based REITs. But on a gearing adjusted basis relative to the respective 10-year bonds, A-REIT is equally good. Given that A-REIT can still drive acquisition-led growth for a while and is better positioned to go overseas, it is possibly the best pick among the REITs.
My Comments : REITs are here to stay as an alternative form of investment. It provides good yield stability, without too much volatility in share price. However, fm a high of 8%+ when the first REIT appeared in our mkt, the local REITs are now going for 4-5% yield. Fortune, a HK REIT is better, at 5%+ yield as currency risk is involved. With the risk free rate now at 2% (Govt Bonds) and likely to continue to go up, REITs at current yield are not that attractive. I expect a min. yield of 5%, although I'd prefer it to be higher. If you do plan to invest in REITs, pls do compare the Yield vs Risk Free rate, as a drastic increase in bank interest rate will likely cause the share price of REITs to drop (so that yield remains attractive relative to bank interest rate).
Currently, I am vested in CCT A @ 1.38 (New Shares Offer in Apr) and Suntec (IPO @ $1 and bot @ $1.25 on 17-Jun). I plan to reduce my hldgs in CCT unless yield improves and buy more Suntec REITs.
16 comments:
SINGAPORE (XFN-ASIA) - Ascendas Real Estate Investment Trust (REIT) and Suntec REIT were lower on concerns that the REIT market may be close to saturation, dealers said.
In late trading, Ascendas REIT was down 0.01 sgd or 0.46 pct at 2.16 on volume of 1.41 mln shares, while Suntec REIT was 0.02 sgd or 1.58 pct lower at 1.25 on 9.79 mln shares.
"There are some fundamental issues outstanding that could potentially drag the market down," an analyst from a local brokerage said, citing interest rates, valuation and more REITs coming into the system.
"The REITs overall are fairly expensive. The REITs have been coming down because unit prices have been going up," he said.
Suntec REIT may be feeling added pressure on a report in the Business Times that its tenant UBS has signed a lease for 10 floors or 200,000 square feet of the 50-story north tower of the One Raffles Quay office building that is being constructed at the new Marina Bay downtown area.
The analyst has a "hold" call on Suntec REIT, with a target price of 1.27 sgd.
SINGAPORE (XFN-ASIA) - GK Goh said that it is downgrading its rating for CapitaLand unit CapitaCommercial Trust Management Ltd to "hold" from "buy", with a target price of 1.52 sgd.
"In view of a potential share overhang and limited upside to our target price, we downgrade our recommendation to a 'hold'," GK Goh analyst Tricia Song said in a note.
Last week, government investment arm Temasek Holdings sold a 29.5 pct stake in CapitaCommercial at 1.50 sgd per share, a discount to the 1.55 sgd CapitaCommercial was trading at before the placement was announced.
However, Song said that she may raise CapitaCommercial's target price if the Monetary Authority of Singapore's proposal to lift the borrowing cap on real estate investment trusts is implemented.
"Assuming CapitaCommercial raises its gearing to 50 pct, our fair value on CapitaCommercial could be raised from 1.52 sgd to 1.69 sgd," Song added.
At 3.23 pm, CapitaCommercial was flat at 1.49 sgd on volume of 170,000 shares.
SINGAPORE (XFN-ASIA) - CapitaLand unit CapitaCommercial Trust management may raise its dividend payout to unitholders to 100 pct of profits from 95 pct after the real estate investment trust (REIT) had a good performance last year, manager Adrian Chui said.
After one year of operations, we have managed our cashflow well...we think it is actually not right for us to keep the 5 pct, Chui told XFN-Asia on the sidelines of the Singapore Exchange seminar for retail investors over the weekend.
Chui, however, declined to comment when CCT is likely to decide on raising the payout ratio.
If it pays out 100 pct of its profits CCT will be on a par with other REIT plays in Singapore.
CCT management decided in 2002 to keep 5 pct of the company profits as it was still testing the waters for office REITs.
Based on a 95 pct payout ratio, CCT's distributable income will be 55.36 mln sgd with projected taxable income to unitholders of 58.28 mln.
CCT plans to double its asset portfolio to 4 bln in three years time, eyeing CapitaLand's properties in Singapore and overseas as acquisition targets.
Chui noted that the proliferation of REIT players as the market matures will make investors more discerning about their growth strategies going forward.
At 10.17 am, CapitaCommercial was up 0.01 sgd, or 0.68 pct at 1.49 on volume of 1.62 mln shares.
SINGAPORE, June 27 (Reuters) - Regulatory changes are set to spur Singapore-listed real estate investment trusts (REITs) to acquire overseas properties even as asset prices in the city state rise.
Singapore, which has pipped traditional rival Hong Kong in developing listed property trusts as popular investment vehicles, is looking to alter the rules to make it easier for REITs to add foreign assets to their portfolios.
"As our market develops, REITs will increasingly look overseas for investment opportunities because there is a limited pool of properties that a REIT can acquire in Singapore," Shane Tregillis, Monetary Authority of Singapore (MAS) Market Conduct Deputy Managing Director, said at a property investment conference on Monday.
While there are no laws preventing Singapore REITs from cross-border buys, trust managers are holding back because they would have to pay unit holders more due to higher risks, analysts said.
But the central bank's plans to give property trusts greater flexibility in their foreign joint ventures and allow them to nearly double their gearing from the current 35 percent cap could nudge them to move ahead.
"Cross-border REITs are likely to be geared higher (than REITs that invest domestically) and the regulators are accommodating that by letting the gearing go up," said UBS Asian Real Estate head, Michael Smith.
In addition to having to pay investors more due to the higher risks, a property trust buying assets abroad would also face the cost of hedging foreign exchange risks.
To maintain an average yield of 4.8 percent, a Singapore property trust would have to find a building that yielded 9.1 percent in the Philippines, 8.7 percent in Indonesia, 7.8 percent in Vietnam, 6.4 percent in Malaysia, 6.2 percent in China or 5.3 percent in Hong Kong, Smith estimated.
Singapore has five listed property trusts with a combined market capitalisation of S$10 billion ($6 billion). Four of these -- Suntec REIT , Ascendas REIT , CapitaMall Trust Management Ltd. and CapitaCommercial Trust -- are based entirely on local assets.
The fifth, Fortune REIT , is based entirely on Hong Kong shopping malls.
This means only 13 percent of Singapore's REIT portfolio is invested abroad compared with Australia's 35 percent.
GROWING COMPETITION
Diversifying abroad would help Singapore property funds as competition for yield-generating assets has intensified since July 2002, when the first REIT was listed in the city state.
"There has been yield compression. We used to see yields of about 8-8.5 percent at the start but this has come down to 7.5-8 percent," said Philip Pearce, Portfolio Manager of Ascendas REIT, which focuses on business parks and industrial properties.
Yields come down when the value of properties increase relative to rent.
CapitaMall Trust Chief Executive Officer Pua Seck Guan said his trust -- Singapore's largest -- would eventually look abroad in the region.
"Southeast Asia and China markets would be logical markets for us," he told Reuters on the sidelines of the conference.
CapitaMall, together with CapitaCommercial, are controlled by CapitaLand Ltd. , which has about 80 percent of its pretax profits generated from outside Singapore and is seen as a prime candidate to launch a REIT based on properties in China.
Last week, Hong Kong media reported that Chinese property development group Guangzhou Investment Co. Ltd. was planning to raise HK$2 billion ($256 million) by listing a REIT based either in Singapore or in Hong Kong.
The company said a REIT was one of the options it was considering but added that it had not reached a decision.
SINGAPORE (XFN-ASIA) - Suntec REIT is close to buying 1 bln sgd worth of office and commercial properties from Wing Tai and City Developments, the Business Times reported, citing unnamed sources.
The assets with a combined 1.2 mln square feet of space include Park Mall on Penang Road. The property is majority owned by Wing Tai.
The potential acquisition also includes various City Developments properties including City House, Fuji Xerox Towers, The Arcade at Collyer Quay, Plaza By The Park on Brash Basah road, Central Mall and Katong Shopping Center, the sources said.
The acquisition is aimed at diversifying Suntec REIT's earnings, which is currently solely derived from the Suntec City office and commercial complex.
Separately, Suntec REIT chairman Justin Chiu said the company plans to grow its asset base by 40-50 pct by the end of the year but he did not identify which properties the group is targetting to buy.
Chiu said the acquisitions could be offices or shopping malls or both.
Extract fm OCBC dated 29-Jun at,
http://www.qian2yu.com/publication/web/singanalysis/targetframe.jsp?url=290605115807967.html
Summary: CapitaCommercial Trust (CCT) has very ambitious plans. It intends to double its asset size, venture into other sectors and to acquire overseas properties. We see numerous implementation risks in this strategy. Some of these risks relate to the maturing of the REIT industry in Singapore; greater competition for properties, whilst others have to do with higher risks associated with entering into other sectors and overseas properties. We have thus not factored in any acquisition growth in our valuation of CCT. The above comment notwithstanding, we have revised our distribution per unit (DPU) forecast marginally to factor in the new units issued to acquire the HSBC building. Our new DPU for FY05 is 6.36 cents and FY06 is 6.58 cents. In terms of valuation, we have revised our fair value upwards to S$1.31 from S$1.24 to reflect the asset enhancement potential of HSBC building. Finally though we see potential downside risk to CCT at current trading range, factoring in the DPU yield of about 4.2%, we see the potential downside at less than 10%. We thus maintain our HOLD rating.
SINGAPORE (XFN-ASIA) - UBS Investment Research said it has upgraded its fair value for CapitaMall to 2.55 sgd per share from 2.20 sgd on expectations that the shopping mall operator will increase its distribution per unit (DPU).
Following CapitaMall's recent acquisitions, UBS said it has raised its forecast DPU for the company for this year to 0.1027 sgd per unit from 0.097 sgd per unit, while its 2006 DPU estimate has been increased to 0.1113 sgd per unit from 0.104 sgd per unit.
Apart from the recent yield-accretive acquisitions already completed, UBS said it expects CapitaMall to make further acquisitions, which may include Bugis Junction and CapitalRetail Fund.
At 3.23 pm, CapitaMall was up 0.01 sgd or 0.42 pct at 2.37, with 140,000 shares traded.
SINGAPORE (XFN-ASIA) - Suntec REIT said it is buying a total of 12 properties from City Developments and Wing Tai for about 1.03 bln sgd, making it the largest real estate investment trust by asset size and net lettable area in the city state.
Suntec REIT will buy 11 properties from City Developments, namely Fuji Xerox Towers, Plaza By The Park, City House, Central Mall (Office Tower), The Arcade Units, Katong Shopping Centre Units, North Bridge Commercial Complex Units, Fortune Centre Units, Golden Mile Complex Units, People's Park Centre Carpark Unit and Queensway Shopping Centre Carpark Unit.
These properties were priced at a total of 788 mln sgd.
Suntec REIT said it will also buy Park Mall, which is majority owned by Wing Tai, for 230 mln sgd.
The total acquisition cost of about 1.03 bln sgd comprises the aggregate purchase price of the properties of 1.02 bln sgd, an acquisition fee of 10.2 mln and other fees and expenses of about 3 mln.
"The acquisition is aimed at diversifying Suntec REIT's earnings, which is currently solely derived from the Suntec City office and commercial complex," Suntec REIT said in a statement.
"Upon completion of the acquisitions, Suntec REIT will have a total of 13 properties," it added.
Suntec REIT said the 13 properties will have a total net lettable area of 3.5 mln square feet and an asset size of 3.3 bln sgd.
"This will make Suntec REIT the largest Singapore real estate investment trust by asset size as well as net lettable area," it said.
Suntec REIT said the acquisitions will improve its distribution per unit (DPU) for its unitholders.
It said that the acquisitions are expected to improve the income diversification of Suntec REIT, "reducing its reliance on any one single property," adding that the number of its tenants is expected to increase by 78.9 pct to 730 from 408 following the acquisitions.
Suntec REIT also said the acquisitions will be partly funded from the expected net proceeds of a proposed offer and the issue of new units to investors, as well as additional borrowings.
In a separate statement, City Developments said that the sale of its 11 properties will give it "an immediate cash receipt of 710 mln sgd."
"Based on the net book value of these properties as of December 31 2004, this deal will provide CDL with a pretax profit of about 342.31 mln sgd, before taking into account the transaction costs," City Developments said.
SINGAPORE (XFN-ASIA) - Ascendas Real Estate Investment Trust (A-REIT) said it has completed the acquisition of Pacific Tech Centre and BBR Building for a total of 68.8 mln sgd.
SINGAPORE (XFN-ASIA) - OCBC Securities said it has upgraded its rating on office and shopping mall landlord Suntec Real Estate Investment Trust (REIT) to "buy" from "hold", while raising its fair value by 8.7 pct to 1.38 sgd per unit as it views its acquisitions positively.
"We view Suntec REIT's acquisition of 12 commercial properties for 1.02 bln sgd positively. Besides making it the largest REIT in Singapore, the acquisition will diversify Suntec REIT's over reliance on Suntec City both in income and location," OCBC Securities said in a research note.
Of the 12 properties, 11 were purchased from City Developments, while one was bought from Wing Tai.
"By appointing City Developments as strategic advisor to Suntec's managers, there is an alignment of interest, which could mean a steady stream of both new and old properties from City Developments' stable into Suntec REIT," OCBC said.
Following the acquisitions, OCBC said it has also raised its forecast distribution per unit for Suntec REIT by 5.1 pct to 0.0649 sgd.
At 10.44 am, Suntec REIT was up 0.01 sgd or 0.82 pct at 1.23 on volume of 832,000 units.
Fm UOBKayHian,
Snippet: Property - Update on Prime REIT
Ergo is on track to raise about S$500m selling shares in the new Prime REIT next month. The listing is likely to be in mid-August. Prime REIT owns about S$1.3b of retail and office properties in Orchard Road. Key points in favour of the Prime REIT are the high occupancy and stable rental rates in the Orchard Road retail district as well as Singapore's initiative to boost tourism and re-juvenate Orchard Road. According to Business Times, Prime REIT's gearing is likely to be about 31% (Debt/ Assets) and the trust will likely distribute 5.11 cents per share in 2005 and 5.24 cents per share in 2006. For Prime REIT to be competitive, its yield will have to be higher than the other Singapore asset based REIT. We estimate the yields to be about 5-5.25% at IPO.
Singapore, 13 July 2005--Ascendas Real Estate Investment Trust ("A-REIT") has renewed and signed new leases (including expansions) amounting to a total net lettable area of 33,031 sqm, representing 3.4% of the net lettable area in its property portfolio for the three-month period ended 30 June 2005 (the "Period").
These leases represent S$7.4 million annualised rental income for A-REIT. Total new leases (including expansions) for this Period was 9,850 sqm of lettable space of which 42% was in the Industrial Park properties and 24% was in the Science Park/Business Park properties. The remaining 34% was in the other two asset classes - Hi-tech Industrial Park properties and Logistics.
Altogether these new leases represent S$1.9 million annualised rental income to A-REIT. The net allocation for this Period was 1,704 sqm.
The overall portfolio occupancy rate for this Period was 94.9% compared to 89.1% in the same period last financial year. The occupancy rate for A-REIT's multi-tenanted buildings has also increased to 89.8% as at 30 June 2005 compared to 86.9% in the prior corresponding period.
A-REIT's portfolio comprises 55% multi-tenanted buildings and 45% long-term leases in sale-and-leaseback properties by portfolio value for this Period.
The average gross rentals of the expansions, new leases and renewals in this Period for business space (including science park) is S$25.45 per sqm per month; for hi-tech industrial space is S$20.14 per sqm per month; for industrial space is S$15.38 per sqm per month and for logistics is S$14.30 per sqm per month.
Mr Philip Pearce, Portfolio Manager said, "A-REIT's performance in the first quarter clearly reflects that rents across the portfolio continue to be stable and the level of renewals and leasing of vacant space further underpins the A-REIT income stream. "
A-REIT welcomes Faro Singapore which brings the occupancy at CG Aerospace Building to 100%; Permenpronic Technologies at Techplace I; Osteopore International and Ansoft Corporation at The Alpha and Asys Automation Singapore at KA Centre.
Existing tenants expanding their space include Venture Corporation and Infodisc Multimedia Manufacturing at Techplace II; ikonvergenz at Techpoint; and Akzo Nobel Surface Chemistry at The Gemini. Renewal tenants include Motorola Electronics at Techpoint; Federal Express Pacific at Techlink; Univac Precision Engineering and New Urban at Techplace I; and Akzo Nobel Surface Chemistry at The Gemini.
SINGAPORE (XFN-ASIA) - Ascendas Real Estate Investment Trust (A-REIT) said its net distributable income for the first quarter to March surged 117 pct year-on-year to 33.10 mln sgd from 15.28 mln as gross revenue doubled to 50.52 mln compared to 25.25 mln a year earlier.
Its distributable income per unit (DPU) rose to 2.84 cents from 2.13 cents a year ago.
"Barring any unforeseen circumstances, the manager of A-REIT is confident that the projected DPU of 9.94 cents for the year ending March 31 2006 will be exceeded," A-REIT said in a statement.
"This is due to the steady performance of the existing properties for the first three months of the year as well as the expected DPU accretion from the 427.8 mln sgd of properties acquired to date in 2005," it added.
SINGAPORE (XFN-ASIA) - CapitaMall Trust Management Ltd, the manager of CapitaMall Trust, said it has entered into a sale and purchase agreement with Shaw Jurong Development Pte Ltd to acquire Jurong Entertainment Centre for 68 mln sgd.
It said Jurong Centre has an entry property yield of 5.2 pct, higher than CapitaMall's current implied property yield of about 4.0 pct based on its unit price of 2.51 sgd yesterday.
"Jurong Entertainment Centre is a good addition to the CMT portfolio with its excellent transport links and strong surrounding residential and business catchments," CapitaMall Trust Management chief executive Pua Seck Guan said in a statement.
The acquisition will be financed through additional borrowings and should be completed by October this year.
Jurong Entertainment Centre has a 99-year leasehold title with 100 pct occupancy rate, over 30 tenants, 221 carpark lots and has a valuation of 69.1 mln sgd as of June 30.
(1 usd = 1.65 sgd)
ASIAN STOCK FOCUS:Singapore REITs Still Offer Good Value
By Kevin Lim
Of DOW JONES NEWSWIRES
SINGAPORE (Dow Jones)--Singapore real estate investment trusts have fallen off their peaks in recent weeks due to higher-yielding trusts coming out of Hong Kong, Malaysia and Thailand but the sector remains a buy, several analysts say.
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That's because S-REITs, as Singapore REITs are collectively known, have low-risk profiles and offer yields that are still higher than most Singapore investments. There are also potential gains from acquisitions and asset enhancements, they add.
Fund managers and retail investors also appear to agree with this assessment, submitting bids in excess of S$20 billion (US$11.9 billion) for Prime Real Estate Investment Trust's (P40U.SG) S$570-million initial public offering that closed last Friday. The value of applications received was the largest for a Singapore IPO since 1990, according to the local Straits Times.
Prime REIT, the seventh property trust to be listed on the Singapore Exchange, closed 7.1% higher at S$1.05 on its debut Tuesday, after rising as high as S$1.13. It shed 1.9% to S$1.03 Wednesday.
Prime REIT owns stakes in Wisma Atria and Ngee Ann City, two large office and retail developments in the heart of the Orchard Road shopping area.
"The expectations for capital gains have muted but S-REITs remain an attractive asset class compared to (Singapore) deposits and government bonds," says Grace Ho, who helps manage SG Asset Management's Asian Real Estate Dividend Fund. S-REITs are currently trading at estimated yields of 4.5%-4.8% for 2005, higher than the 1.7% to 2.1% payable on large fixed deposits and 2.9% yield on benchmark 10-year Singapore Government Securities.
While overseas REITs offer better returns, there are currency risks and the quality of assets and the regulatory environment may not be as good, Ho notes.
At an offer price of 98 Singapore cents a unit, Prime REIT provides an annualized distribution per unit of 5.12% for 2005 - above the distribution per unit for other S-REITs, but below the 6.3% yield offered by Thailand's CPN Retail Growth Property Fund (CPNRF.TH) and 5.75% offered by Malaysia's Axis REIT (5106.KU). CPN units were sold at 7% during their IPO while AXIS REIT's were launched at around 8%.
More property trusts are expected to come out of Malaysia and Thailand in coming months, while Hong Kong's Housing Authority is scheduled to offer its US$2.7 billion Link REIT before the end of this year.
During a briefing on Singapore REITs last week, JPMorgan's head of Singapore research Christopher Gee said that while the "supernormal returns" of up to 50% a year in the past two years are unlikely to be repeated, sustainable 8%-9% per annum rates of total returns (distribution plus capital appreciation) can be expected.
Regulatory Changes May Boost Returns
Helping fuel distribution per unit growth are pending regulatory changes that will allow REIT managers to increase gearing to 60% from the current 35% limit, allowing Singapore REITs to generate higher returns.
Another change will permit partial ownership of investment properties, subject to certain guidelines, making it easier for REITs to buy assets in neighboring countries where laws require overseas investors to have a local partner, Gee adds.
Merrill Lynch analyst Sean Monaghan says the DPU premium over government bonds in Singapore is in line with regional markets such as Japan and Australia, but growth prospects for S-REITs are better with opportunity to increase yields by enhancing current assets and through domestic and regional acquisitions.
"We expect all of the major S-REITs to announce international expansion initiatives over the next 12 months," he says.
Both Monaghan and Gee rate CapitaMall Trust (C38U.SG) and Ascendas Real Estate Investment Trust (A17U.SG) their top picks in Singapore, citing the potential for acquisitions that are yield accretive.
CapitaMall was last traded at S$2.36 Wednesday, down from its all-time high of S$2.66 in early August but up 34% since the beginning of the year; while Ascendas is now at S$2.18, down from its peak of S$2.38 in mid-August but up 28% since Jan. 1.
Turning to the large premium to book value that several Singapore REITs are trading at, which some investors describe as a "red flag," Gee says the premiums reflect, to some extent, the economies of scale and risk diversification from owing a large portfolio of different properties as opposed to a single asset.
Singapore REITs also possess a tax advantage over other forms of property investments, as earnings and dividends paid to local investors aren't taxed, giving valuations an automatic lift of about 20%, which is the city-state's corporate tax rate, he adds.
Citing CapitaMall as an example, Gee says the properties in the portfolio have been valued with implicit capitalization rates of between 5.8% and 7.8% at end-December 2004, even though cap rates - which are roughly equal to yields on the property - for investment grade shopping malls currently stand at 5.0%-5.3%.
CapitaMall subsequently said the properties in its portfolio have been revalued upward by 13% using "conservative" cap rates of around 5.5%-6.0%.
Not all investors are convinced, however.
"I think REITs will still be popular in Singapore for a while due to their higher yield in a low interest rate environment. We are, however, less bullish as we believe the 'easy money' era is largely over," says Teng Ngiek Lian, chief executive of Singapore-based Target Asset Management Pte. Ltd., which manages around US$700 million worth of investments in the region.
Teng says he believes the current 4.5%- 4.8% yield on S-REITs is very much fair value with little upside potential, unlike Hong Kong, where the economy is growing faster and REITs can offer greater rental revision potential.
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