UOBKayhian on 20 May 2014
Developers’ results were impacted by slowing home sales although share prices
(+6.7% ytd) were supported initially by undemanding valuations, buoyed by
privatisation. REITs’ results were largely within expectations as anticipated. We like
deep-value and diversified property stocks, preferably those with exposure to the
commercial and hotel segments. CCT, Suntec REIT, Keppel Land, CDREIT,
CapitaLand and Wing Tai are our preferred picks. Maintain OVERWEIGHT.
Strong data points emerging for the office space as rental reversions remain positive
across almost all office buildings while occupancies remain tight. Leasing activity is
also picking up with CapitaCommercial Trust (CCT) signing 12% of available space in
upcoming CapitaGreen. We anticipate that office rents will rise 10-15% in 2014 on the
back of reduced supply and improving demand outlook.
Office REITs positioning for acquisitions with Suntec REIT raising S$350m in a private
placement to pare down debt in the near term, while exploring acquisition opportunities
in Australia and Singapore. On the other hand, Keppel REIT has divested Prudential
Tower for S$512m (4.5% above book) to free up capital for the upcoming acquisition of
Marina Bay Financial Centre Tower 3. CCT also has an option to acquire the remaining
60% of CapitaGreen from the JV with sponsor CapitaLand and Mitsubishi Real Estate.
Hotel RevPARs are bottoming out with hotel REITs reporting a flattish RevPAR post a
9% drop in 2H13. CDL Hospitality Trust reported a turnaround in Singapore RevPAR
after six consecutive quarters of decline, with RevPARs up a modest 0.5% yoy.
Industrial segment seeing divergence with stronger occupancies and rental reversions
in warehouse (17% for Mapletree Log from Singapore and Hong Kong) and factory
space (8% for Mapletree Industrial), while business park space continues to remain
weak as occupancies dipped (e.g. down 4.4ppt yoy to 89.6% for AREIT) driven by
slower take-up of older vacated space (eg The Signature for MIT) and newly upgraded
space (eg 31 International Business Park for AREIT).
Retail weakness in tenant sales (-4% yoy for CMT) and shopper traffic (-2% yoy for
CMT) for retail REITs as new malls drew shopper traffic from older malls, impacting
older malls such as Bedok Point (occupancy: 77%). A difficult retail environment is also
impacting retailers, with Japanese lifestyle brand Francfranc and Japanese skincare
brand Fancl closing their retail operations. However, yield-accretive acquisitions are still
possible with FCT's S$313m acquisition of Changi City Point (+1% DPU) to be funded
with a mix of debt and equity.
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