Malaysia & Singapore Real Estate

[nick2004]

S-Reits still attractive, dividend yields fair
Counters worth noting include Allco Reit and Macquarie MEAG Prime Reit

THE Singapore real estate investment trust (Reit) market has become more developed since our last review in November 2005. Not only are there more Reit counters, there are now also more 'categories' of Reits available to investors.

In 2006, six new Reits were added to the Singapore bourse, making a total of 13. Ascott's A-Reit and CDL's H-Reit, which were among the six, also created a new Reit category - the Hospitality Reit.

Reit prices have performed well since the listing of the first Reit, CapitaMall Trust (CMT), in July 2002. Between July 2002 and September 2006, our Reits index has improved by over 167 per cent and achieved a compounded annual growth rate (CAGR) of 32.4 per cent compared with the Straits Times Index's 60 per cent improvement and a CAGR of 15.5 per cent. Furthermore, the correlation of the Reits index to the STI was a low 0.22.

Dividend yield from these investments has been rewarding and volatility of such yields was also small. On average, Reits offered investors a dividend yield of about 5.7 per cent, with a fluctuation of only about 0.7 of a percentage point.

Does this mean that investors should jump on the bandwagon now? Not really. While prices of the 'pioneer' Reits, such as CMT, CapitaCommercial Trust (CCT), and Ascendas REIT (A-Reit) have increased at a phenomenal rate, current dividend yields have actually tumbled. To illustrate, CMT's dividend yield has fallen from 7 per cent at the beginning of July 2002 to just 4.4 per cent in September 2006.

Does this mean that Reits are overvalued? The answer is interestingly also 'no'. Comparing the initial and current dividend yields to the risk-adjusted required return (calculated from the sub-category indexes), we can see that the pioneer Reits initially offered investors dividend yields higher than the risk-adjusted required return.

In our Macquarie International Infrastructure Fund analysis report, we argued that investors add on unnecessary risk premium of between 50 per cent and 130 per cent over the risk-adjusted required returns when they are faced with new and unfamiliar investments. We call this additional risk premium 'apprehension discount'.

Of course, investors will remove this discount as they learn more about the investment over time and this could explain the exceptional increase in Reit prices over the last few years. Interestingly, we have also noticed prices of Mapletree Logistic Trust (MLT) adjusting downwards over the last few months - moving dividend yields towards its risk adjusted returns.

The above analysis implies that investors are now more apt at pricing most Reit instruments and that such prices efficiently reflect available information - with over and undervaluation minimised.

So, are Reits still attractive then? A recent report by JPMorgan suggests that S-Reits offer the highest yield gap compared with Reits in other bourses like Hong Kong, Australia, and even the US.

Real estate companies, such as Colliers International and Jones Lang Lasalle (JLL), have also reported strong growth in office rentals and strong demand for retail space. Colliers reported that average monthly gross rent of Grade A offices grew by a record 13.1 per cent in the second quarter of 2006, surpassing the 8.9 per cent growth rate in the first quarter of 2006; while JLL saw modest but consistent gains in Grade A retail rentals at an average rate of about 1.5 per cent quarter-on-quarter for the first two quarters of 2006. As for industrial land, strong rental growth is seen only in the high-tech industrial sector.

Furthermore, risk free rates - proxied by the three month inter-bank rates - have also stabilised at about 3.5 per cent in recent months, which will reduce the stress of yield crunch on Reits.

S-Reits, therefore, seem attractive at this juncture and dividend yields look fair. While the average commercial and retail category Reits offer returns close to their required returns, there are some counters worth noting like Allco Reit and Macquarie MEAG Prime (MMPrime) Reit which offer investors opportunities to lock in good returns at current prices. Investors should also note that hospitality stocks' returns are lower than the required returns. This signifies two possibilities - potential growth or overoptimism in value.

Do take note again that Reits are not risk-free investments. Look closely at the quality of the management and the assets under the Reit and assess if the investment is worth the risk.

[xsw05]

Some Reits performance for last 4 mths

Counter 1st Aug 06-27th Nov 06
Cambridge : 0.675- 0.68
CCT : 1.86 - 2.55
CMT 2.16 - 2.7
Ascott Reit : 1.1 - 1.38
MMP : 0.91- 0.98
Suntec : 1.26- 1.7
Mapletree : 0.885- 0.985
Ascendas : 1.97- 2.45
CDLH : 0.91- 1.26

[banzai]

agreed.. want something safe and good bet, this is it..

lots of analysts are saying SG office rental yields have a lot of upside potential.. so REITs with good mix of such commercial properties may have a lot more upward room, in terms of yields..

[xsw05]

shopping Mall Reit going up over 20% except MMP. Got rumor, MMP will acquire Macquarie's asset in oversea . ...this rumor also cannot help this counter

[banzai]

MMP super slow and steady.. MRT tunnel close oso no effect on the unit price

[banzai]

no coverage for K-REIT?

KREIT should be ~$1.5 on the 1st Aug, now at $2.35

[xsw05]

Thanx Banz, seem not bad K-reit can get over 50% gain.
So far for commercial reit, i opt for CCT. Now i will reconsider K-Reit.

[banzai]

[xsw05]

Current Yield for some SG Reit.(extracted from DBS Vickers report)

A-Reit - 4.7%
CapitalCom Trust - 2.8%
CapitalMall Trust - 4.1%
Fortune Reit (HK$) - 5.9%
Macquarie MEAG Prime Reit - 5.6%
Mapletree Logistics Trust - 4.6%
Suntec Reit - 4.2%
Allco Com Real Estate - 5.2%
Ascott Residence Trust - 4.2%
K-Reit - 2.6%
Cambridge Ind Trust - 3.1%
Frasers Centrepoint Trust - 4.3%
CDL Hospitality Trust - 3.9%


http://www.remisiers.org/research//reit081206dbs.pdf

[banzai]

off hand... KReit looks wrong.. it should be closer to 5++%. Probably because the figures are not annualised.

[xsw05]

[nick2004]

...which do u guys think have BOTH value and potential???...............




...i'm leaning 2wards, CCT, CMT and Suntec..............

[banzai]

[chris2004]

Citi raises target prices for Reits
It rates CMT a 'buy', but rates A-Reit a 'hold', CCT a 'sell'

HAVING lowered its projections for 10-year government bond rates from 3.5 per cent to 3 per cent, Citigroup has upgraded the target prices of the real estate investment trusts (Reits) it covers.

However, while CapitaMall Trust Management (CMT) continues to be favoured as a 'buy', Ascendas Reit (A-Reit) has been downgraded to a 'hold', owing to its top price performance in the last quarter. Citi maintains a 'sell' on CapitaCommercial Trust (CCT), arguing that a couple of the trust's major tenants could be subject to rental caps.

Asset enhancement is the key force behind value creation at CMT, said analyst Wendy Koh, who raised her target price for the Reit from $2.69 to $3.21. CMT's stock price closed at $2.85 yesterday.

CMT has started asset enhancement at Bugis Junction, which is expected to add $4 million - or 10 per cent - to net income, she said. Asset enhancement at Raffles City could also add 25 per cent to net income and value, where CMT plans to add 150,000-200,000 square feet of retail space.

Asset enhancement is also ongoing at IMM, and other assets with potential include Sembawang Shopping Centre, Hougang Plaza and Jurong Entertainment Centre. Through such programmes, CMT has raised the value of some properties by 30-75 per cent, said Ms Koh.

It is Citi's top pick among Singapore Reits, with the highest expected total return of 15 per cent, comprising a 10.7 per cent share price return and a 4.3 per cent expected dividend yield.

A-Reit, on the other hand, has seen its stock price rise 27 per cent since October 2006, Ms Koh said in her Jan 4 report. She raised the target price for A-Reit from $2.35 to $2.72, and downgraded the stock to a 'hold'. A-Reit units closed at $2.56 yesterday.

A-Reit registered the highest quarter-on-quarter rise in occupancy rates for its multi-tenanted buildings to 94.3 per cent, while its high-tech industrial parks and science and business parks sectors achieved growth to 96 per cent and 93 per cent respectively.

'A-Reit could also acquire another $400 million worth of yield-accretive assets in FY08 without raising equity as its assets are revalued,' Citi said. However, with increased competition from other industrial Reits, 'the days of rapid growth in DPU (distribution per unit) might be over'.

Despite raising the target price for CCT from $2.04 to $2.30, Ms Koh reiterated a 'sell' on the Reit, citing rich valuations and a risk of DPU disappointment. CCT's price closed at $2.54 yesterday.

'At current price, we estimate CCT offers the lowest yield of just 3 per cent among the listed Reits in Singapore,' she said.

Key tenants at CCT's Capital Tower, with leases expiring in 2007 and 2008, are subject to rental caps. In addition, with more than 90 per cent of the space in the tower to be renewed only in December, it is unlikely to benefit fully from rising rental rates, said Ms Koh.

'We believe we were too optimistic on its rental reversion for 2007 and 2008 previously. DPU growth in 2007 is likely to be just 7.7 per cent. The bulk of growth will likely take place in 2008 with DPU expected to rise by 24 per cent.'

[banzai]

hehehe.. yeah.. CCT's yield is ridiculously low.. slightly above 3% i think according to today's Edge SG.

But moving forward into year.. this should move up quite a fair bit and CCT's properties should be positioned ideally for such an increase. one of those prime examples of valuation based on future earnings.. which is fine if the rental rates have been locked in..

for Retail .. CRCT and CMT are natural options..

[banzai]

lots of red these days

[banzai]

new research report=>

http://www.remisiers.org/research//CCT%20&%20SUN%20-%20Downgrade%20by%20UBS%20(5%20June).pdf

FIRST REIT not covered

[Fernando Alonso F1 Champ]

Occupancy cost of offices falls in Singapore

But it still ranks as third most expensive city in Asia-Pacific, says Colliers

By ARTHUR SIM

GRADE A office occupancy cost in Singapore dropped 22 per cent from an annual average gross rent of US$125.06 per sq ft in the first half of 2008 to US$97.07 psf in the second half.

But Singapore remained the third most expensive city in the Asia-Pacific, according to a report by Colliers International.

Occupancy cost is defined as the annual average gross rent of central business district (CBD) Grade A office space. Hong Kong and Tokyo retained their first and second spots, with respective average gross rents of US$177.86 psf and US$128.40 psf.

Worldwide, Singapore was ranked the sixth most expensive city, while Hong Kong was the most expensive.

Tay Huey Ying, director of research and advisory at Colliers, said: 'Despite the fact that Singapore's CBD Grade A office rents registered a 22 per cent decline in H2 2008, it has retained a high position in the regional and global ranking.

'This is because office rents in almost all other cities have been similarly pressured down by the global financial crisis.'

Colliers' report shows that nine of the major Asia-Pacific cities surveyed registered rental declines exceeding 20 per cent. Brisbane and Perth experienced the steepest declines of more than 28 per cent.

While Singapore remains expensive, Ms Tay believes cost competitiveness has improved slightly, particularly against other key financial cities like Hong Kong and Tokyo.

She noted that Singapore's office occupancy cost is now 45 per cent cheaper than Hong Kong's, widening from 41 per cent in June 2008. Compared with Tokyo, occupancy cost here is now 24 per cent cheaper, versus just 3 per cent in June 2008.

The Grade A office vacancy rate in Singapore rose 1.4 percentage points to 8.9 per cent in the second half on 2008. The 8.9 per cent figure is high compared with Hong Kong and Tokyo, both with 4 per cent.

Seoul had the lowest vacancy rate at 0.7 per cent, while Guangzhou had the highest vacancy rate at 23 per cent.

Ms Tay said: 'The growing vacancy rate in Singapore is due to the interplay of dwindling demand and surging supply.'

Colliers says demand for office space here shrank for the first time in four-and- a-half years in December 2008.

New supply, on the other hand, was about 1.4 million sq ft in 2008 - the largest amount since 2002 and exceeding the cumulative net new supply of office space from 2003 to 2007 by almost 1 million sq ft.

Ms Tay said that in line with the economic contraction, demand for office space in Singapore is set to slide in 2009 and the vacancy rate is set to rise.

'On the supply side, 2.9 million sq ft of office space is estimated to come on stream in 2009, on top of the bumper crop of net new completion amounting to 1.4 million sq ft seen in 2008,' she said.

The situation will be aggravated by the supply of 2.5 million sq ft of new hi-spec industrial space due for completion in 2009, as well as a rise in shadow space.

Although close to 50 per cent of the new hi-spec space has been pre-committed, Ms Tay believes the remaining space is likely to compete with the office sector for tenants.

In addition, shadow supply is expected to grow in 2009 as companies downsize or relocate to cheaper premises prior to lease expiry
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"Dont change lifestyle! Change Government!!"

I mean Change the Barisan Najis govt !!!!! Dont get it wrong !

[Fernando Alonso F1 Champ]

from dbs vickers

[Bozo!]

have been loading some recently..

LMIR, ART & FCoT..
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Sleeping body...

[Fernando Alonso F1 Champ]

FCoT has been stuck in this funky range bwteen 13.5 and 14.5 for a long while liao..........
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"Dont change lifestyle! Change Government!!"

I mean Change the Barisan Najis govt !!!!! Dont get it wrong !

[Bozo!]

ya lor.. good thing is, it is stable.. bad thing is also it is stable..

but i like it because it is something i can have a lot of lots of
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Sleeping body...

[jenny.smith]

REITs have added a dimension to the real estate investment and capital markets requires both investors and property companies. The expected increase in the REIT would have a positive impact on the global market because it adds depth to the market and offers investors in the broader investment options.
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