PROPERTY STOCKS have been moving the Singapore market, but the buzz has been on developers, while REITs have been the laggards.
Developers sold an unprecedented 1,825 homes in June, boosted by mass-market and mid-end project launches. New launches from listed developers accounted for 64% of total sales.
On the other hand, REITs, which depend on cheap credit financing to grow, are challenged by the 200-300 basis points above prime rates that banks are charging for commercial mortgage.
CapitaCommercial Trust
Brokers reiterated their cautious take on CapitaCommercial Trust (CCT), after the REIT announced its results on Wed (22 Jul), with Daiwa Securities sticking its neck as the odd bull out with an “Outperform” call on the stock.
Analysts were concerned that Grade A office space has been plagued by rental decline of as much as 48% since its peak last Oct.
Furthermore, a supply glut plagues retail rental sector, with an increase in lettable space of 57% for Orchard Road and 18% islandwide for 2009.
| Report Date | Broker | Call | Fair Value |
22 Jul | Goldman Sachs | Neutral | 98 cents |
22 Jul | Citigroup | Sell | 69 cents |
| 22 Jul | Daiwa | Outperform | $1.09 |
22 Jul | UOBKH | Hold | 82 cents |
22 Jul | DMG | Sell | 73 cents |
23 Jul | CIMB-GK | Underperform | 76 cents |
23 Jul | Kim Eng | Hold | 88 cents |
However, Daiwa Securities' David Lum begs to differ, arguing that office S-REITs trade at the most attractive valuations, as the worst-case supply glut and rental-collapse scenarios are already reflected in stock prices. Its “Outperform” call is based on downside resilience.
Retail rental contributed the lion’s share of CCT’s 1H09 revenues (45%). Hotel & convention centers contributed 36% while office space contributed 19%.
Its 11 Singapore properties are located in the core central region and are landmarks such as Capital Tower and Raffles City. It also has some properties in Malaysia.
Brokers generally like CapitaCommercial Trust for the quality of its assets and the sound balance sheet following the rights issue.
CBRE estimates the average rent for prime Grade A office to be $10.15 psf in 2Q09, higher than CCT’s passing rent of $8.14 psf. This implies that there could still be positive rental reversion for the rest of 2009.
Furthermore, office rents may stabilize with the economy in 2Q09. Singapore registered a real GDP growth of 20.4% q-o-q, and the Singapore government revised its full-year forecast upwards to a contraction of between 4% and 6%, up from the 6% to 9% range.
2Q09 distributable income of S$48.0m was up 33.2% yoy while distribution per unit (DPU) of 1.71 cents was down 34.2% yoy.
Total DPU for 1H09 is 3.33 cents and will be paid on 28 Aug 2009.
CCT benefited from positive rental reversion and improved operating margin.
New rents are about 45% higher than previously signed rents. The average monthly office rent for CCT's portfolio is S$8.14psf, up 5.3% qoq.
Its portfolio occupancy remains relatively unchanged at 96%. More than half of its leases expiring in 2009 have been renewed. 92% of 2009's forecast gross rental income has been locked-in with committed leases.
S$664 million of its rights issue proceeds have been used to repay borrowings, thus reducing gearing from 43% to 31% as at Jul 09.
All refinancing has been completed for 2009 and CCT has no major debt refinancing need until 2011.
Mapletree Logistics Trust
Mapletree Logistics Trust (Mapletree) posted total amount distributable of S$29 million, up 27% yoy for its 2Q09 results yesterday (Thu) evening after market close.
DPU for 2Q09 distribution will be 1.48 cents, payable on 28 Aug. This amount is a slight improvement to 1Q 2009’s DPU of 1.47 cents.
Singapore, Hong Kong and Japan contributed close to 90% of Mapletree’s net property income. It also has properties in Malaysia, China and South Korea.
Its occupancy rates have been sustained at above 98%. Lease renewal rates were maintained at around 80%, with rental rates largely unchanged.
Its gearing is currently 37.8%, with no refinancing risk.