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www.dbsvickers.com ed: TH / sa: JC
STI : 3,281.95
Analyst Derek TAN +65 6682 3716 [email protected]
Mervin SONG CFA +65 6682 3715 [email protected] Rachael TAN +65 6682 3713 [email protected]
STOCKS PICKS
Source: Bloomberg Finance LLP, DBS Bank
DBS Group Research . Equity 8 Jan 2015
Singapore Industry Focus
Singapore Property Refer to important disclosures at the end of this report
Year of Reckoning
Modest growth prospects for Singapore property market; sectors linked to external demand to do well
Prefer Developers to S-REITs on valuations
S-REITs – focus on growth rather than rate hikes
Modest growth prospects; sectors linked to external demand to outperform. The Singapore property market will likely see a further downshift in growth in 2015 as prices and rentals across major real estate subsectors feel the brunt of ongoing economic restructuring (Retail sector). In addition, demand/supply imbalance due to supply completion schedules is positive for Office prospects but result in a drop in rents and prices in Industrial and Residential sector respectively. We believe that the Hospitality sector will post a rebound in RevPARs as accommodation demand (mainly from China) picks up faster than supply growth. Prefer Property Developers to S-REITs. From a valuation perspective, we prefer developers to S-REITs as we expect valuations to normalize towards historical average of 0.90x P/Bk NAV (vs 0.83x P/Bk NAV currently) while forward yield spreads at c. 3.5% for S-REITs is already at normalized historical average levels, which we deem to be fair. Property Developers – opportunities outside of Singapore. Property developers are expected to continue (i) clearing existing unsold inventories and remain selective on land-banking opportunities in Singapore, (ii) deploy capital in opportunities outside of Singapore to diversify and build up a recurring income base. Valuations are attractive at 0.83x P/Bk NAV, 0.7x P/RNAV. Our top developer pick is CAPL for its improving ROEs and diversified earnings base. Focus on growth for S-REITs rather than rate hikes. It will be a year of two halves for S-REITs and we believe the sector will see more pressure in 2H15 as rate hikes loom. We see (i) a modest growth outlook of c.5.3% in 2015 with potential downside from foreign exchange (AUD, JPY and EUR) impacting distributions and (ii) stronger USDSGD rate impacting on returns as hurdles to further outperformance in 2015. That said, further clarity from MAS recent regulatory recommendations is near term catalyst for investors in the space. Our picks are CDL HT, A-REIT, CMT, MAGIC and FCOT.
Price (S$)
Mkt Cap Target Price Yield (%) P/Bk
6/1/15 US$m S$ FY15F FY15F Rating
Developers CapitaLand 3.24 10,349 3.84 2.3% 0.8 BUY REITs CDL Hospitality Trusts
1.75 1,294 1.86 6.8% 1.1 BUY
Ascendas REIT 2.40 4,276 2.49 6.3% 1.2 BUY Capitamall Trust 2.06 5,245 2.12 5.5% 1.2 BUY Mapletree Greater China Trust
0.95 1,932 1.04 7.0% 0.9 BUY
Frasers Commercial Trust
1.42 723 1.53 7.1% 0.9 BUY
Industry Focus
Singapore Property
Page 2
Derek TAN (65) 6682 3716
Mervin SONG CFA (65) 6682 3715 [email protected]
Rachael TAN (65) 6682 3713
Table of Contents
Investment Summary 3
Key Charts 4
Peer Comparisons 7
Singapore REITs – Navigating tougher times 9
Developers – Awaiting re-rating catalysts 17
Subsector Outlook Summary:
Residential – Approaching a slippery slope 20
Retail - The swing to the suburbs 32
Office – Displacement demand to sustained uplift in rents for 2015 39
Industrial Sector – Business Park space to shine 45
Hospitality Sector – Renewed hope 50
Charts – S-REIT yield and P/Bk NAV 59
Charts – Developers P/Bk NAV 68
Stocks Profiles
Ascendas REIT 72
Capitaland 76
CapitaMall Trust 80
CDL Hospitality Trusts 84
Fraser Commercial Trust 88
Mapletree Greater China Commercial Trust 92
Industry Focus
Singapore Property
Page 3
1. Investment Summary
Subdued outlook for Singapore property market - sectors hinging on external demand to do better. 2015 will continue to be a year of further moderation for Singapore property market with most real estate subsectors expected to feel the brunt of ongoing economic restructuring or demand/supply imbalance due to a spike in supply completions in 2015/2016. Office rents to peak in 1H16; office REITs’ prices typically lead spot rents by 9months-1year. Amongst the key real estate sectors, we see the brightest rental prospects in the office sector, supported by a lack of supply in space in the CBD and expect rents to increase by c. 10% over 2015. We expect a positive flow-through to demand in the Business Parks/Sub-urban office space. We are however, aware of the medium term risk in the sector due to a skew in supply completions in 2016/2017 and expect medium term downside risks. Office REITs prices typically lead spot rents by 9 months to 1 year, meaning that further upside from current levels is limited. Hospitality – rebound from a low base. We believe that the Singapore hospitality sector is poised for a rebound in 2015 driven by returning tourists from China. We project demand for accommodation to more than compensate for a 5.7% growth in room supply. RevPARs is expected to post a turnaround, albeit at a more moderate rate of 3.6%. Retail remains resilient; but reversions to fall below inflation growth rate. The retail sector is expected to continue to remain resilient despite an increasing tough operating climate for retailers faced with increasing labour cost, shortage impacting productivity. In addition, e-commerce remains a rising threat for retailers who are unable to establish an online presence. That said, retail REITs should remain stable given that they (i) own only c.34% of total retail space in Singapore and (ii) actively manage their properties which see high recurring spending and traffic. Supply concerns for industrial but business park subsector fundamental improving. We remain cautious on the industrial sector due to increased downside risks on the back of heightened supply completion schedule in 2015/2016. This will spike vacancy rates to >10% and spot rents are projected to dip by c.5% per annum over 2015/2016. Industrial REITs will see flattening or potentially negative rental reversion rates over the next two years. That said, we are positive on the business park subsector as we see demand returning due to a lack of office supply in the CBD. Residential prices projected to drop 15% over 2015/16. With prices only down c.3.9% from the peak, we believe that the residential sector remains on an early part of a down-cycle.
With a reduced population growth rate resulting in slowing demand, we see prices falling by up to c.15% over 2015-2016 in anticipation of (i) a hike in supply completion over 2015-2016, resulting in vacancy rates rising to 9%-10%, and (ii) “yield compression on the back of weakening rental rates impacting and rising interest cost. Strategies for:
Singapore REITs – stock specific catalyst to drive
performance Singapore REITs have done their job well over the past two years, offering investors stable returns in market uncertainty. Looking into 2015, while timing of rate hikes will remain a sector overhang, we see road-bumps to further outperformance from (i) a modest DPU growth of c.5.3% with downside risks in earnings stemming from Singapore’s domestic restructuring impacting on margins, (ii) forex exchanges losses (especially for S-REITs with exposure to the AUD/JPY and EUR) will be a key dampener for earnings in 2015 and (iii) strengthening USD-SGD which may lead to fund outflows from the sector. We expect S-REITs to continue to look at overseas for growth opportunities and acquisitions to feature. Catalyst will come from clarity from the recent MAS consultant paper and expiring tax incentives. Our preferences are S-REITs with the opportunity to surprise on the upside through acquisitions or portfolio-specific catalysts. Top picks are CDL HT, A-REIT, CMT, MAGIC and FCOT. Singapore Developers – Diversifying out of Singapore Our call on the developers is mainly due to valuations. Firstly, we view current trading levels of (P/Bk NAV of 0.83 and 0.70x P/RNAV) as attractive given that developers trade at close to historical – 0.5 SD level. While we expect further downside to Singapore residential prices in 2015, we note that developers have in general (i) locked in a substantially portion of sales in residential projects in Singapore residential and have been selective in land-banking strategies, (ii) diversified their exposures away from Singapore and have been focused on building up their recurring income base. We see catalysts coming from a potential loosening of selective property measures when further price declines occur and value unlocking events through asset divestments over the year. Our pick is CAPL. Risks
1. Earlier than expected rise in interest rates negatively impacting on earnings
2. External shocks impacting on demand/supply fundamentals.
Industry Focus
Singapore Property
Page 4
2. Key Charts
Summary of DBS assertions on Major Property Subsectors
Residential Outlook – Negative
Market to see a surplus in housing units in 2016
Vacancy Rates and PPI movement
Key Assertions New supply completions spiking in 2015/16 adds pressure
to rentals and vacancy rates Widening spread between HDB resale and private property
prices affecting upgrader affordability Residential market still early in the down-cycle; project
prices to dip 12-15% over 2015-2016
Risks • Slower than projected decline in prices resulting in a delayed
relaxation of cooling measures • External shock causing a downturn in the Singapore
economy and a significant decline in the property market
Retail Outlook - Neutral
Rental reversions to moderate as RSI declines
Overseas travel causing a slowdown in retail spend
Key Assertions Muted retail sales outlook poses a risk to retailers’
occupancy costs and rental reversions • Consolidation among retailers to intensify in 2015 amid
rising labour costs and labour shortage • Retail REITs will continue to remain defensive, given well-
located assets, good management track record and staggered WALE
Risks • Increased penetration of e-commerce causing decline in
retail sales • Lower fuel prices drives growth in disposal income and retail
sales
‐
50.0
100.0
150.0
200.0
250.0
(50,000)
(40,000)
(30,000)
(20,000)
(10,000)
‐
10,000
20,000
30,000
40,000
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
201
7
Surplus/Deficit(units)
Change in Dwellings URA PPI (RHS)
Surplus
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
‐
50.0
100.0
150.0
200.0
250.0
1990 1993 1996 1999 2002 2005 2008 2011 2014 2017
(%)Index
Property Price Index (LHS)
Vacancy Rate (RHS)
0
2
4
6
8
10
12
14
16
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Jan-
04
Jul-0
4
Jan-
05
Jul-0
5
Jan-
06
Jul-0
6
Jan-
07
Jul-0
7
Jan-
08
Jul-0
8
Jan-
09
Jul-0
9
Jan-
10
Jul-1
0
Jan-
11
Jul-1
1
Jan-
12
Jul-1
2
Jan-
13
Jul-1
3
Jan-
14
Jul-1
4
Re versions (%)RS I Growth
over 3 years agoRSI ex-motor vehicles (LHS)CMT portfolio reversions (%) RHS
Re tail sales growth vs 3 years pr ior: worse than during GFC
14.0%
14.5%
15.0%
15.5%
16.0%
16.5%
17.0%
17.5%
18.0%
0
5,000
10,000
15,000
20,000
25,000
30,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
% of PCES$'m Residents' Expenditure Abroad
Residents' Expenditure Abroad as % of PCE
Industry Focus
Singapore Property
Page 5
Office Outlook - Positive
Historical net supply and absorption rate
City Fringe Rents to rise faster as CBD crunch worsens
Key Assertions • Office rents outperformed the market in 2014 on the back
of limited supply • Displacement demand from Equity Plaza and 2HR should
bolster rents in 2015 • Office REITs could enjoy stronger-than-expected reversions
in 2015 as new supply only anticipated to complete in 2H16
Risks • Earlier completion of new office supply • Shadow space from further contraction in demand from
the financial services sector
Industrial Outlook – Negative
Industry facing 14% expansion in industrial supply
Rental Reversions to turn negative
Key Assertions Market rents to moderate 5% p.a. due to concentration of
new industrial supply completions in 2014-2016 Business Park space to surprise on the upside, given lack of
office space in the CBD Industrial REITs rental reversions to flatten out or turn
negative over 2015-2016
Risks Weaker than-expected Singapore economy resulting in
further-than-expected declines in rents Shadow space in the single-user factory space resulting in
increased competition within multi-user factory space
Source: DBS Bank
-2,000
-1,000
0
1,000
2,000
3,000
4,000 '000 sqft
Net Supply: Private Sector Net absorption: Private Sector
0.00
2.00
4.00
6.00
8.00
10.00
12.00
Mar
-90
Feb-
91Ja
n-92
Dec
-92
Nov
-93
Oct
-94
Sep-
95A
ug-9
6Ju
l-97
Jun-
98M
ay-9
9A
pr-0
0M
ar-0
1Fe
b-02
Jan-
03D
ec-0
3N
ov-0
4O
ct-0
5Se
p-06
Au g
-07
Jul-0
8Ju
n-09
May
-10
Apr
-11
Mar
-12
Feb-
13Ja
n-14
S $ psf pm
Median Rent psf: Office Central Area Median Rent psf: Office Fringe Area
Re nt differential of up to 60% for central area vs city f r inge offices
-
500
1,000
1,500
2,000
2,500
3,000 Sqm
Demand Supply
5-year average 1.1m sqm
3-year average 2.4 m sqm
-20%
-10%
0%
10%
20%
30%
40%
50%
2009 2010 2011 2012 2013 2014F 2015F 2016F
Business Park Warehouse Factory
Negative reversion
Industry Focus
Singapore Property
Page 6
Hospitality Outlook - Positive
Downturn in Chinese tourists in 2014 but recovery from 2015
Bounce in occupancy and ADR in 2015
Key Assertions Recovery in Chinese tourists and overall tourist arrivals to
catalyse performance in 2015 RevPAR to turn positive despite supply completions,
projecting a 3.6% growth in 2015
Risks Slower-than-expected rebound in Chinese tourist arrivals
resulting in lower-than-projected recovery in RevPAR
Source: DBS Bank
0
50
100
150
200
250
300
70%72%74%76%78%80%82%84%86%88%90%
Occupancy (LHS) ADR (RHS)
S$
-3.2%-13.2%
25.0%
34.7%28.9%
11.6%
-27.8%-25.0%
12.5%15.0%
10.0%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
y-o-y growth
Industry Focus
Singapore Property
Page 7
3. Peer Comparisons
Singapore REITs Peer Comparisons
REIT FYE Price 6/1/15
Rec Target Price
Total Return
Mkt Cap
DPU Yield(%) DPU Growth
P/Bk
(S$) (%) S$'m FY14/15F
FY15/16F
FY16/17F
FY14/ 15F
FY15/ 16F
FY16/17F FY14-16 (x)
Office CCT Dec 1.75 Hold 1.70 2% 5,153 8.6 8.8 9.6 4.9% 5.0% 5.5% 2% 1.05 FCOT Sep 1.42 Buy 1.53 14% 964 8.5 10.1 10.3 6.0% 7.1% 7.2% 19% 0.88
5.6% 6.2% 6.4% Retail CRCT Dec 1.63 Buy 1.70 11% 1,350 10.8 11.9 13.1 6.6% 7.3% 8.0% 10% 1.11 CMT Dec 2.06 Buy 2.12 8% 7,132 11.0 11.3 11.5 5.3% 5.5% 5.6% 3% 1.19 CRT Jun 0.92 Buy 1.00 18% 471 8.1 8.2 7.8 8.8% 8.9% 8.5% 1% 1.23 FCT Sep 1.91 Buy 2.05 13% 1,749 11.2 11.5 11.7 5.8% 6.0% 6.1% 3% 1.03 SPH REIT Aug 1.04 Hold 1.01 3% 2,619 5.9 5.4 5.4 5.6% 5.2% 5.2% -8% 1.11
5.7% 5.8% 5.9%
Commercial
MCT Mar 1.45 Hold 1.46 6% 3,040 8.0 8.5 9.3 5.5% 5.9% 6.4% 7% 1.25
MAGIC Mar 0.95 Buy 1.04 17% 2,564 6.2 6.7 7.5 6.5% 7.0% 8.0% 8% 0.90
SGREIT Dec 0.81 Buy 0.90 18% 1,733 5.1 5.3 5.5 6.4% 6.6% 6.9% 3% 0.86
Suntec Dec 1.94 Hold 1.85 0% 4,854 9.0 9.9 10.7 4.6% 5.1% 5.5% 10% 0.97
5.2% 5.6% 6.4%
Industrial
a-itrust Mar 0.84 Buy 0.87 9% 773 4.6 5.3 5.9 5.5% 6.3% 7.0% 14% 1.27
A-REIT Mar 2.40 Buy 2.49 10% 5,774 14.7 15.1 15.3 6.1% 6.3% 6.5% 3% 1.19
Cache Dec 1.16 Buy 1.37 26% 902 8.6 9.2 9.6 7.4% 8.0% 8.3% 7% 1.18
CREIT Dec 0.69 Hold 0.74 15% 869 5.0 5.2 5.3 7.3% 7.6% 7.7% 4% 1.01
MINT Mar 1.50 Buy 1.53 9% 2,598 10.1 10.2 11.0 6.8% 6.8% 7.3% 1% 1.28
MLT Mar 1.18 Buy 1.25 13% 2,913 7.6 7.7 8.1 6.4% 6.6% 6.9% 2% 1.07
SBREIT Dec 0.79 Buy 0.92 25% 638 6.2 6.8 6.9 7.9% 8.7% 8.8% 10% 0.99
6.5% 6.7% 4.4%
Hospitality
ASCHT Mar 0.67 Hold 0.72 16% 745 5.5 6.2 6.2 8.2% 9.2% 9.3% 12% 1.13
ART Dec 1.27 Buy 1.40 17% 1,949 8.3 8.9 9.0 6.5% 7.0% 7.1% 7% 0.89
CDREIT Dec 1.75 Buy 1.86 12% 1,715 10.9 11.9 12.0 6.2% 6.8% 6.9% 9% 1.08
FEHT Dec 0.83 Hold 0.82 6% 1,464 5.3 5.5 5.5 6.4% 6.6% 6.7% 3% 0.84
FHT Sep 0.89 Buy 0.94 13% 1,055 5.9 6.2 6.3 6.7% 7.0% 7.1% 5% 1.06
OUEHT Dec 0.91 Buy 0.95 12% 1,203 6.8 7.0 7.3 7.4% 7.7% 8.0% 4% 0.99
6.8% 7.2% 7.3%
Others
P-Life Dec 2.34 Buy 2.66 19% 1,416 11.6 12.2 12.3 5.0% 5.2% 5.3% 5% 1.44 IREIT Dec 0.90 Buy 0.95 13% 377 6.5 6.8 6.7 7.2% 7.5% 7.5% 3.0% 1.05 Sector Average 6.0% 6.2% 6.5% 1.03
Source: Bloomberg Finance LLP, DBS Bank
Industry Focus
Singapore Property
Page 8
Singapore Developers Peer Comparisons
Mkt Price Target
Company FYE Cap 6-Jan-15 RNAV *Assumed Price Upside P/RNAV Latest Qtr Latest Qtr
(S$m) (S$) (S$) Discount (%) (S$) % Rcmd (x) NBV/Share P/NBV
Residential Developers
Capitaland Dec 13,798 3.24 5.51 -30% 3.84 19% Buy 0.59 3.76 0.86
City Dev Dec 9,166 10.08 12.33 -15% 10.71 6% Hold 0.82 8.63 1.17
Fraser Centrepoint Ltd Sep 4,768 1.65 2.98 -30% 2.05 24% Buy 0.55 2.29 0.72
Ho Bee Dec 1,308 1.96 3.50 - NR - - 0.56 3.31 0.59
Wheelock Dec 2,076 1.74 2.57 - NR - - 0.68 2.51 0.69
Wing Tai Dec 1,296 1.65 4.06 -45% 2.22 35% Buy 0.41 3.74 0.44
Landlords
Global Logistics Properties Mar 11,712 2.42 3.31 0% 3.42 41% Buy 0.73 2.28 1.06
UOL Dec 5,400 6.86 10.21 -20% 8.13 19% Buy 0.67 8.59 0.80
Source: DBS Bank
Industry Focus
Singapore Property
Page 9
4. Singapore REITs – Navigating tougher times
Key Assertions
Timing of rate hikes a sector overhang but not the sole determinant of price performance
Modest growth prospects and weakening SGDUSD to impact flows into sector
MAS consultation paper and expiring tax incentives key datapoints in 1H15
Picks CDL HT/A-REIT/CMT/MAGIC/FCOT
Year of outperfomance; compression in bond yields brought yield spreads up to 4.0%. The Singapore REITs (S-REITs) came out winners in 2014, rising by c.9% YTD, higher than Straits Times Index (FSSTI) and Property Developers (FSTREH) which increased by a lower 4-5%. We believe that the sector’s outperformance stems from continued interest from investors due to the sector’s attractive yield of c.6.2% while 10-year yields compressed to c. 2.2% from (spread of 4.0% against the 10-year bond of c.2.2%). We have also seen demand from new investors in the S-REIT space, attracted by the sector’s strong earnings visibility and consistent payouts. S-REIT outperformance the STI and Developers
Source: Bloomberg Finance L.P., DBS Bank The S-REITs delivered a consistent set of results over the past year as rental reversions remained positive, and portfolio occupancies remained stable. Together with opportunistic acquisitions/completion of development projects since the start of 2014, the S-REITs sector has delivered c.5% y-o-y growth in distributions over the past year. Retail/Commercial REITs and Healthcare REITs delivered the strongest y-o-y growth at 9-13% y-o-y.
Retail REITs delivered strongest growth in distributions
Source: Companies, DBS Bank Gearing to increase to c.35% in 2015; 75% of interest obligations hedged. S-REIT’s average gearing remains at the 32-35% range over FY14F-15F, which is likely to remain stable as most S-REIT managers have indicated that they see a 35-40% level as being optimal at the current market cycle. We understand that 75% of interest obligations in FY15/16F have been hedged into fixed rates (either through fixed rate MTNs, swaps, etc). S-REIT average gearing
Source: Bloomberg Finance L.P., Companies, DBS Bank
Well Spread out Debt Maturity Profile
34.5%
30.6%
32.8%32.3%
32.6%
34.8%
28.0%
29.0%
30.0%
31.0%
32.0%
33.0%
34.0%
35.0%
36.0%
2010 2011 2012 2013 2014F 2015F
20142%
201513%
201621%
201717%
>201747%
Source: Companies, DBS Bank
2700
2800
2900
3000
3100
3200
3300
3400
3500
640
660
680
700
720
740
760
780
800
2/1/2014 2/4/2014 2/7/2014 2/10/2014
Index PtIndex Pt
Singapore REITs
Singapore Developers
Straits Times Index (RHS)
5%
4%
10%
3%
5%
0% 2% 4% 6% 8% 10% 12%
S-REITs
Office/Commercial
Retail
Industrial
Hospitality
Industry Focus
Singapore Property
Page 10
Key Issues in 2015 Heading into 2015, we believe that with the market casting an eye on rate hikes on the horizon, we believe that S-REITs' outperformance in 2014 is not likely to be repeated. Our strategy is to stick to S-REITs that offer higher growth prospects or absolute yields that we believe will compensate for the risk of higher interest costs. Key themes in 2015 are: A. Overhang in performance as rate hike looms
Upward bias for 10-year US Treasury despite divergent monetary policies globally. Looking forward into 2015, differing global growth prospects in the developed economies of Japan, Europe and US will likely mean that the timing of rate hikes is likely to be uncertain again, although DBS Group’s view is for the US Federal Reserve (Fed) to contemplate a first, moderate hike from 4Q15. That said, current 10-year US Treasury yields (UST) of 2.2% seem low in a post-taper environment and should see an upward bias to 3.10% by 4Q15, implying a 90-bps increase. Over that period, the yield curve is expected to flatten with the shorter end of the yield curve (3m Libor and 2Y Libor) rising faster than longer duration yields. Likewise, the SGD yields are also expected to rise in tandem and 10-year yields are expected to rise by c.39bps over the course of the year.
DBS Group forecasts interest rates to increase steadily over 2015
USA 10th Dec’14 4Q15 Changes (%) 3m Libor 0.24% 0.40% 0.16% 2Y 0.61% 1.60% 0.99% 10Y 2.21% 3.10% 0.89% 10Y-2Y 1.60% 1.50% -0.10%
Singapore 10th Dec’14 4Q15 Changes (%) 3m Sibor 0.44% 0.60% 0.16% 2Y 0.61% 1.35% 0.74% 10Y 2.26% 2.65% 0.39% 10Y-2Y 1.65% 1.30% -0.35%
Source: DBS Bank
Yield Curve to “flatten” as short rates rise faster than the
longer-end rates
Higher cost of funds in 2015. The short end of the curve (3m SIBOR and 2-Year SIBOR) on which typical lending rates are expected to see marginal hikes of 16-74bps over 2015. While most of the increases are coming from 2H15, we believe that there is still a small window for S-REITs to continue to renew expiring loans early before feeling the impact of higher rates on their numbers. In addition, with a high hedge ratio of 75% as a guard against higher interest rates, impact of an earlier-than-expected increase is likely to be muted. S-REITs – Rising rates and overhang for the sector but not totally out. Rising interest rates are generally negative for yield instruments like S-REITs as opportunity costs (measured as 10-year government bond yields) rise and yield spreads compress. Based on our estimates, S-REITs currently offer a FY15F yield of 6.2% or a yield spread of close to 4.0% might look attractive (between its mean and -1SD of its historical range), but is expected to approach 3.55% on a forward basis, which is in line with its historical mean, implying prices are fair.
S-REITs yield spread to compress towards mean by 4Q15
Source: Bloomberg Finance L.P., companies, DBS Bank
Losing allure of a strengthening USDSGD exchange rate. Since 2008-2014, following three rounds of quantitative easing by the Fed, we saw a greater negative correlation (-0.84x) between a strengthening SGDUSD rate and the FSTREI index, implying the carry trade that has boosted returns for holding S-REITs over 2010-2014. With this trend expected to reverse in 2015, we see less of a pull for S-REITs from 2015 onwards. FSTREI index vs SGDUSD exchange rate
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
Jan-11 Jan-12 Jan-13 Jan-14 1Q15
S-REIT Yield Spread Average (2006-2014) - 1 SD +1 SD
0.44%
0.61%
2.26%
0.60%
1.35%
2.65%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3m SIBOR 2Y 10Y
10-Dec-14
4Q15
Source: Bloomberg Finance L.P., DBS Bank 1
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
-
200
400
600
800
1,000
1,200 USDSGD exchangeIndex Pt
FSTREI Index
USDSGD Rate
Correlation of -0.84Correlation of -0.44
Source: Bloomberg Finance L.P., DBS Bank
Industry Focus
Singapore Property
Page 11
Mean reversion a target for S-REITs. While S-REITs are trading at FY15F yield spreads of 4.0% compared to the current 10-year bond rate of 2.2%. The strong share price performance in 2014 resulted in the current yield spread at a more compressed level than the average 2.4%-2.5% for most of 2014. With, expected further hikes in Singapore 10-year bond rates to 2.84% by middle of 2015 are seen to bring spreads closer. Based on this assumption, yield spreads are expected to compress further towards 3.4-3.7%, which will place it in line with the sector long term mean of c. 3.5%. As such, with S-REITs facing a modest 5.3% DPU growth outlook coupled with further upside risks to the long bond yields, we believe that mean reversion is our medium-term target and thus at current prices, we believe that S-REITs' valuations are fair.
Growth to lead the way. Despite an expected overhang in share prices due to rotation from yield-sensitive sectors like S-REITs as the year progresses, we believe that the market should not take a broad-brushed approach but instead focus on underlying fundamentals and stick to REITs with strong underlying growth prospects and high absolute yields which will compensate for the risk of rising interest rates.
S-REIT Performance is closely linked to growth prospects
Source: Bloomberg Finance L.P., companies, DBS Bank
Historical S-REIT yields and S-REIT yield spreads (2005-current)
Period Years 10 Year bond (%)
S-REIT Yields (%)
S-REIT Yield Spreads (%)
Comments
2005 2.9% 5.0% 2.1% 2006-2008 was a period of high growth
for the S-REITs where average distribution growth was c.13% over 2006-2008. Key Catalysts were acquisitions
“High Growth” 2006 3.4% 5.0% 1.6%
2007 2.9% 4.2% 1.3%
“Aberration in valuations due to
the GFC”
2008 2.8% 7.9% 5.1% Yield spread expanded to >5.1% due to financial crisis 2009 2.4% 9.4% 7.0%
2010 2.4% 6.3% 3.9% Post-global financial crisis period, the sector saw yield compression in 2012-2013 before the Fed hinted of rate hikes in mid-2013
“Liquidity driven recovery”
2011 2.1% 6.6% 4.5%
2012 1.5% 6.2% 4.8%
2013 1.8% 5.5% 3.8%
2014 2.5% 6.4% 3.9%
Periods
2005-cuurent 2.5% 6.0% 3.5%
2006-2008 3.0% 5.5% 2.5%
2010-current 2.0% 6.1% 4.1%
Forward
Current (FY15F) 2.2% 6.2% 4.0%
Forward(FY15F) 2.6% 6.2% 3.6%
Source: Bloomberg Finance L.P. Finance L.P, DBS Bank
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
300
400
500
600
700
800
900
1000
1100
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14
FSTREI Index S-REIT Growth Rate y-o-y
Industry Focus
Singapore Property
Page 12
B. Growth opportunities
Slight pick-up in DPU growth for FY15/16 Moving into FY15/16, we expect a slight pick-up in overall S-REIT DPU growth of 5.3% from the projected 2.8% in FY14/15. This is largely driven by improvements in the Office/Commercial, Industrial and Hospitality sectors. This is partially offset by lower contribution from the retail sector. Better performance from the Office/Commercial sectors is mainly organically driven as FCOT (switch from master lease at Alexandra Technopark), Suntec (benefits recent AEI) and MAGIC (strong tenant sales) are able to generate healthy rental reversions. Meanwhile, the hospitality sector should benefit from a recovery in tourist arrivals into Singapore with ART boosted by recently announced acquisitions. For the industrial sector, despite the supply headwinds, acquisitions should underpin the DPU growth outlook. In contrast, the retail sector should be buffeted by slowing tenant sales. FY15/16F DPU growth
Source: Various REITs, DBS Bank Decent growth over next three years Over the next three years, we still expect decent growth for S-REITs, with a projected 3.4% p.a. increase in DPU. Organic growth of 3.1% p.a. is supplemented by 1.1% p.a. boost from acquisitions. This is partially diluted by issuance of shares for management fees. The sector with the best growth prospects is the Office/Commercial sector, which has the highest organic growth outlook of 4.1% p.a. with 1.6% p.a. boost from the contribution of acquisitions/new developments. In comparison, the industrial and Singapore retail sectors which face headwinds in the form of excess supply and slowing retail sales, should deliver the slowest organic growth at 2.3% and 2% respectively.
Office/commercial sector offers the highest growth prospects over next 3 years
Source: Companies, DBS Bank Jump in M&A activities in 2014 There has been an increase in M&A activities by S-REITs in 2014. This was led by the hospitality, retail and Office/Commercial REITs. Notable transactions include the highly anticipated acquisition of 1/3 interest in MBFC Tower 3 by K-REIT for S$1.2bn, A-REIT’s purchase of Aperia (a mixed use development) for S$458m and OUEHT’s proposed purchase of Crown Plaza Changi and extension for S$495m. Increase in M&A activities lead hospitality and retail sectors
Source: Various REITs, DBS Bank In terms of country allocation, Singapore continues to be the main investment market with c.S$2.9bn worth of properties purchased in 2014. There has also been a noticeable increase in interest in Japanese properties with S$734m invested compared to S$37m in 2013. This is on the back of expectations of further cap compression as the Japanese government pursues reflationary policies or “Abenomics”.
0 1,000 2,000 3,000 4,000 5,000
Office/Commercial
Retail
Industrial
Hospitality
Healthcare
Total
2014
2013
2012
S$m
5.3%
5.5%
3.2%
1.7%
5.8%
6.1%
0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%
S-REITs
Office/Commercial
Retail
Singapore retail
Industrial
Hospitality
3.1%
4.1%
3.5%
2.0%
2.3%
2.6%
1.1%
1.6%
0.1%
0.0%
1.5%
0.9%
-0.8%
-1.3%
-0.7%
-0.3%
-0.4%
-0.8%
-2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%
S-REITs
Office/Commercial
Retail
Singapore retail
Industrial
Hospitality
Organic Inorganic Equity Dilution
3.4%
4.4%
2.7%
3.4%
2.8%
Net 3 year DPU CAGR (2014-2018)
1.7%
Industry Focus
Singapore Property
Page 13
Singapore remains the core investment destination
Source: Various REITs, DBS Bank Meanwhile, sponsor-related properties remain an important source of acquisition pipeline for S-REITs, contributing about 58% of total acquisitions by value in 2014.
Sponsor continues to be valuable source of acquisition pipeline
Source: Various REITs, DBS Bank
Acquisitions by S-REITs in 2014
REIT Property Country Sector Value (S$m) Vendor
A-REIT Aperia Singapore Commercial/Mixed 458 3rd Party K-REIT 1/3 interest in MBFC Tower 3 Singapore Office 1,248 Sponsor Related
FIRT Siloam Hospitals Purwakarta Indonesia Healthcare 31 3rd Party P-Life 2 nursing homes and extended-stay lodging facility
for elderly Japan Healthcare 37 3rd Party
P-Life Habitation Jyosui Japan Healthcare 39 3rd Party Religare Mohali Clinical Establishment India Healthcare 58 3rd Party
ART Quest Sydney Olympic Park, Mascot & Campbelltown Australia Hospitality 93 3rd Party ART Citadines Gaoxin Xian China Hospitality 35 Sponsor Related ART Citadines Zhuankou Wuhan China Hospitality 32 Sponsor Related ART Dalian serviced residence China Hospitality 119 3rd Party ART Best Western Shinjuku Astina Japan Hospitality 95 3rd Party ART Infini Garden in Fukouka Japan Hospitality 78 Sponsor Related ART Somerset Ampang Kuala Lumpur Malaysia Hospitality 65 Sponsor Related ASCHT Osaka Namba Washington Hotel Plaza Japan Hospitality 111 3rd Party CDREIT MyStays Asakusabashi and MyStays Kamata Japan Hospitality 64 3rd Party OUEHT Crown Plaza Changi Airport and room extension Singapore Hospitality 495 Sponsor Related
Cache DHL BTS at Tampines LogisPark Singapore Industrial 105 3rd Party MINT 2A Changi North Street Singapore Industrial 14 3rd Party MINT Hewlett Packard BTS Singapore Industrial 250 3rd Party MLT Daehwa Logistics Centre Korea Industrial 31 3rd Party SBREIT 39 Senoko Way Singapore Industrial 18 3rd Party Viva Jackson Square and Jackson Design Hub Singapore Industrial 112 3rd Party
CRT Luz Omori Japan Retail 43 Strategic Partner CRT NIS Wave I Japan Retail 134 3rd Party CRT One's Mall Japan Retail 133 3rd Party FCT Changi City Point Singapore Retail 305 Sponsor Related LMRT Lippo Mall Kemang Indonesia Retail 362 Sponsor Related
Source: Various REITs, DBS Bank
32%51% 58%
68%49% 42%
0%10%20%30%40%50%60%70%80%90%
100%
2012 2013 2014
Sponsor/Strategic partner 3rd party
45%
16%1%
28%
3% 7%
2013
Singapore
China
Japan
Australia
Indonesia
Others
63%
4%
16%
2%9% 6%
2014
Singapore
China
Japan
Australia
Indonesia
Others
Industry Focus
Singapore Property
Page 14
Overseas acquisitions a potential driver for 2015
With slowing growth rates and limited investment opportunities in Singapore, we expect S-REITs to focus their efforts on acquisitions in overseas markets, especially Japan and Australia on the back of the declining JPY and AUD. Furthermore, Australia may come into focus for the Fraser Centerpoint Limited (FCL) group of REITs, as FCL may look to monetize some of its Australand properties. For ART, Australia could also be a growing investment market on the back of its sponsor CapitaLand inking a deal to acquire a 20% interest in Quest Australia’s serviced apartment provider and investing up to A$500m new properties that Quest will secure for its franchise network. In addition, with China loosening its
monetary policy, this may be a catalyst for greater interest for S-REITs. Finally, the CapitaLand group of REITs, may be presented with greater investment opportunities, as CapitaLand, post the acquisition of CapitaMalls Asia, may look to recycle assets of its balance sheet. Well place to fund acquisitions
With a majority of S-REITs’ gearing around the 30-35% level, they have sufficient debt headroom available to fund acquisitions. Nevertheless, with prospects of rising interest rates, the ability to complete yield accretive acquisition will become more challenging.
S-REITs gearing headroom and sponsor pipeline
REIT Gearing end FY14/15F
Headroom 40%
Headroom 45%
Sponsor Potential Pipeline Remarks
Office
CCT 32% 962 1,721 Capitaland Remaining stake in CapitaGreen
Contingent on performance of CapitaGreen
FCOT 37% 101 281 Frasers Centrepoint Land
Valley Point/Alexandra Point/Cecil Street Office property/Australand properties
High likelihood for Australand's properties though subject to FCOT share price
Retail
CRCT 32% 289 517 Capitaland Malls in China Subject to valuation and malls being stabilised
CMT 38% 283 1,176 Capitaland Westgate, Star Vista, Bedok Mall, Ion Orchard
Possible acquisition of Westgate
CRT 52% n/a n/a Croesus Group, Daiwa House, Marubeni
Mallage Saga, Forecast Kyoto Kawaramachi, China properties
No immediate plans to purchase Chinese properties
FCT 29% 450 720 Frasers Centrepoint Limited
Waterway Point, Northpoint City
Pipeline assets under construction
SPH REIT 26% 774 1,142 SPH Seletar Mall Seletar Mall yet to be stabilised as it only opened in Dec14
Commercial
MCT 39% 98 481 Mapletree Investments
Mapletree Business City (MBC) 1&2
MBC 2 under construction
MAGIC 38% 204 672 Mapletree Investments
Kowloon East Office Kowloon East Office under construction, MAGIC looking at opportunities in China
SGREIT 29% 562 885 YTL Corporation
Focused on existing assets at the moment
Suntec 36% 607 1,429 Cheung Kong Holdings/ARA No acquisitions expected
Source: Various REITs, DBS Bank
Industry Focus
Singapore Property
Page 15
S-REITs gearing headroom and sponsor pipeline (cont’d)
REIT Gearing end FY14/15F
Headroom 40%
Headroom 45%
Sponsor Potential Pipeline Remarks
Industrial
a-itrust 24% 297 426 Ascendas Group
Cybervale Chennai Subject to share price performance and stabilisation of INR
A-REIT 34% 795 1,582 Ascendas Group
Industrial assets Acquisitions likely to be from sponsor (business park properties in Singapore).
Cache 32% 154 270 CWT/ARA Ramp up warehouses from CWT
Likely to acquire one asset in 2015.
CREIT 33% 153 286 N/A Exploring opportunities in Australia, Japan and Malaysia.
MINT 35% 303 631 Mapletree Group
Tai Seng development Under development and not likely to be acquired in the near term.
MLT 36% 278 714 Mapletree Group
Properties in Hong Kong, China High likelihood of M&A to supplement growth, given headwinds in Singapore
SBREIT 35% 84 187 Soilbuild Group Holdings
Various industrial properties
Hospitality
ASCHT 36% 104 252 Ascendas Group/Accor
Asia Pacific properties Potential disposal of Pullman Cairns to provide additional financial flexibility.
ART 36% 275 660 Ascott Group Serviced apartments in China, Quest apartments in Australia
Potential expansion into China, Japan and Australia.
CDREIT 31% 346 597 City Developments
St Regis, South Beach project Lower gearing provides firepower for acquisitions.
FEHT 31% 374 639 Far East Organisation
7 hotels & serviced residences Assets not ready to be injected.
FHT 42% n/a 106 Frasers Centrepoint Limited and TCC Group
18 hotels and serviced residences
Delivery of IPO prospectus forecasts before considering acquisitions.
OUEHT 32% 254 444 OUE Limited Limited, given proposed acquisition of Crowne Plaza Changi and extension
Healthcare
P-Life 34% 153 310 IHH Hospitals in the region including Novena Mt Elizabeth
Others
IREIT 33% 35 65 Stella Holdings, Shanghai Summit, Mr Lim Chap Huat
Low likelihood, given current share price
Source: Various REITs, DBS Bank
Industry Focus
Singapore Property
Page 16
C. Reforms and Key tax issues to address
Proposed new REIT enhancements from the MAS Consultation Paper to be implemented by end 2015. The Monetary Authority of Singapore (MAS) released a consultation paper back in Oct’14 highlighting potential tweaks to the current regulatory regime governing REITs and REIT managers. Key proposals include: (i) improving the corporate governance and disclosures for REIT managers; (ii) minimizing instances of “conflicts of interests” between REIT managers and investors through refining REIT managers’ compensation methodologies; and (iii) operational tweaks like having REITs adhere to a higher leverage limit of 45% (vs 35% currently) and eliminating the 60% cap on REITs with a credit limit. In addition, MAS proposes to raise the development limit for REITs to 25% from the current 10% of total assets. These measures are likely to be implemented from 1st Jan 2016 onwards. Summary of Key Proposals
Areas of interest Main proposals
Corporate governance Increased independence (e.g. at least half of board to be independent directors) and transparency (e.g. disclosure of remuneration).
Refining alignment of incentives
Pegging fees to long-term unitholders interests including linking performance fee to NAV or DPU/unit rather than REIT's gross revenues and acquisition/divestment fees determined on a cost recovery basis. Removing link between fees of directors of REIT manager to shares in Sponsor and prohibiting remuneration of executive officers to revenue of the REIT.
Operational flexibility Moving to single tier gearing limit of 45% regardless of whether credit rating is obtained. Change from 35% gearing limit without a credit rating and 60% with a credit rating. Additional development limit for REITs to 25% from current 10% of total assets (additional 15% for assets held for 3 years or more).
REIT structuring Increased clarity of income support arrangements and greater disclosure of operating expenditure, WALE and debt maturity profile.
Source: MAS, DBS Bank Positive catalyst for the sector; lower cost of capital. In our report, “Strengthening REIT regulations” dated 10th Oct’14, we remain positive that these proposed better governance and confidence for investors in SREITs in general.
Assuming the proposals are passed, we should result in (i) a reduction in fees; and (ii) greater transparency and alignment between REITs and their unitholders. This should increase confidence and attractiveness of REITs to investors and potentially result in lower cost of capital for S-REITs. A strong and functioning REIT sector is also a long term positive for sponsor/property developers who have another avenue to recycle assets efficiently. Sunset clauses for tax incentives expire in 31st Mar 2015. We note that tax incentives that were extended back in 2010 will expire come 31st Mar’15, which is a key uncertainty for S-REITs going forward. These incentives are (i) tax holidays for overseas-sourced income; (ii) stamp duty and goods and services tax (GST) remission; and (iii) concessionary income tax rate of 10% for non-resident non-individual investors. Summary of Sunset Clauses
Clauses Potential Impact if
not renewed
1. Concessionary income tax rate of 10%
for non-residential non-individual
investors.
Lower returns for
investors
2. Stamp Duty and GST remission on
transfer of a Singapore immovable
property to a REIT.
Higher acquisition
cost and lower yields
3. Subject to satisfying certain conditions
and approval from the authorities, S-
REITs currently enjoy tax exemption for
foreign-sourced income.
S-REITs might have
to incur restructuring
cost to maintain its
tax efficiency or incur
tax leakages going
forward
Source: Bloomberg Finance L.P., DBS Bank Uncertainty for S-REITs. The impact on distributions and growth for S-REITs for the two clauses is uncertain at this moment, although we believe that it will make business sense to do so. These tax incentives have been a popular measure as Singapore’s clear regulatory and tax frameworks are key attractions that made Singapore one of the leading REIT hubs in the Asia Pacific (ex Japan) region. In addition, Singapore needs to remain ahead, given that regional markets like India, Thailand and China have been fine-tuning and instituting their own REIT regulations to draw in capital investments.
Industry Focus
Singapore Property
Page 17
5. Developers – Awaiting re-rating catalysts
Key Assertions
Expect 12-15% drop in price over 2015-2016; expectations of government policy loosening unlikely to happen unless an accelerated price drop
Developers substantially de-risked residential exposure and sought to diversify and build up recurring income
Top pick: CAPL
Developers underperformed the S-REITs in 2014. While Singapore Property Developers (measured by the FSTREH index) returned a positive c.4% in 2014, it still underperformed both the STI and S-REITs which were up by c.5% and c.9% respectively. The lacklustre performance for the developers stocks in 2014 can be attributable to a lack of catalysts due to a stagnant property market. Investors have continued to prefer to stay in the S-REIT space due to their relative attractiveness backed by strong income stability and high yield/yield spreads of c.6.2%/4.0%, which we believe are preferred characteristics in times of uncertainty. What are key themes for 2015?
A.Policy relaxation a catalyst Relaxation of tight Government policy measures a catalyst for the sector, but will they or will they not? After multiple rounds of cooling measures, the Singapore private residential home prices, measured by the PPI, have moderated by c.3.9%, while HDB resale prices have dropped by a wider
7.1% from the peak. While government measures have worked somewhat in halting the rise in prices and curbing speculation, recently, there have been calls by developers to the government to relax specific policy measures that are deemed more cyclical. We believe that Singapore's residential market has moved beyond further tightening but expectations of policy loosening might not happen anytime soon. This is because, we believe that the current price drop, measured by the PPI, is still fairly moderate and the current low interest rate environment will mean that the government is likely to take a more cautious stance towards any policy loosening at this juncture. Recently signs from the government also suggest that the property measures are here to stay, subject to a "meaningful drop” in prices. That said, we believe that the government stands fast to act when it happens or if an external shock has a disproportionate impact on prices. Attractive valuations. In our analysis, we have removed Global Logistics Properties (GLP) as the stock trades at a premium due to its niche exposure in logistics real estate. Since the start of the policy tightening cycle over two years ago, we have seen the Singapore developers (FSTREH) underperforming the S-REITs as the market attempted to digest the impact of policies. As such, the developers' performance has been sideways and are currently trading at a P/Bk NAV of 0.83x (on an ex GLP basis or 0.88x including GLP). This is between its -1SD and historical mean. On an RNAV perspective, the sector is trading at a 30% discount and is close to its historical -1SD level.
Developers returned 4% in 2014; underperforming
the STI and S-REITs
Developers trading at close to -1SD -to-RNAV
650
670
690
710
730
750
770
790
2/1/2014 2/4/2014 2/7/2014 2/10/2014
Singapore REITs
Singapore Developers
Source: URA, DBS Bank
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
Mar‐1997
Mar‐1998
Mar‐1999
Mar‐2000
Mar‐2001
Mar‐2002
Mar‐2003
Mar‐2004
Mar‐2005
Mar‐2006
Mar‐2007
Mar‐2008
Mar‐2009
Mar‐2010
Mar‐2011
Mar‐2012
Mar‐2013
Mar‐2014
P/RANV Mean +1 SD ‐1 SD
Industry Focus
Singapore Property
Page 18
Developers - stay nimble. We view current valuations as attractive (P/Bk NAV of 0.83 and 0.70x P/RNAV) and given that developers trade at close to historical -0.5SD level. We believe that current levels have already priced in the negatives from a weakening market outlook. Based on historical price performance, we note that share price for developers reacts quickly to expectations of declines/rises in the physical property price index. In previous down-cycles in 1996, 2000 and 2009, the PPI declined between 20-45% from its respective peaks. Property developers declined by a more significant 46-74% from the peak (measured on a P/Bk NAV basis) and bottomed at around c.0.5x P/Bk NAV over the past three cycles. Prices for
property developers typically stabilised at c.0.90-0.93x after the troughs in 4Q98/1Q04 and 3Q09. However, we note that developer prices are quick to react on the upside once the property market turns around. While we do not expect this to happen in 2015, we believe that valuations are attractive, given that developers' current P/BK NAV of 0.83x is already trading at a discount to historical stabilized levels which average c.0.90-0.93x. As such, we believe that there is a buffer against any further expected negative data points in the residential market.
Singapore property market cycles and developers' performance
Private Residential Property Index (PPI)
Developers (P/Bk NAV pefromance)
Periods Peak (ppt)
Trough (ppt)
Number of quarters to
trough P/Bk NAV
% Chg
Trough (x)
% decline from Peak
Average P/Bk NAV post declines
4Q83-2Q86 52.5 33.5 11 -36% N/A N/A N/A
2Q96-4Q98 181.4 100 11 -45%
0.45x -69% 0.90x
2Q00-1Q04 140.4 112.4 16 -20% 0.54x -46% 0.93x
2Q08-4Q09 177.5 165.7 5 -25%
0.55x -74% 0.92x
3Q13- YTD 216.3 N/A N/A -4% YTD 0.74x -39% -
Source: URA, Bloomberg Finance L.P. Finance LLP, DBS Bank
Developers Price-to-Bk NAV vs PPI Developers trading at 0.83x P/Bk NAV (-0.5x SD from
historical trading range)
Source: URA, DBS Bank Source: URA, DBS Bank
‐
0.50
1.00
1.50
2.00
2.50
‐
50.0
100.0
150.0
200.0
250.0 Property Price Index Developer P/Bk NAV
‐
0.50
1.00
1.50
2.00
2.50
Jan‐97
Jan‐98
Jan‐99
Jan‐00
Jan‐01
Jan‐02
Jan‐03
Jan‐04
Jan‐05
Jan‐06
Jan‐07
Jan‐08
Jan‐09
Jan‐10
Jan‐11
Jan‐12
Jan‐13
Jan‐14
P/Bk NAV Mean ‐ 1 SD +1 SD
Industry Focus
Singapore Property
Page 19
Asset Divestments and Increased Recurring income base
Quick asset-turn strategy; focus on recurring income and overseas. Over the years, developers have raked in strong sales in their residential projects, maintained a quick-asset turn strategy in their project launches amidst tightening regulatory environments. Most have been selective in their land-banking and have focused on clearing unsold inventories selectively. As such, developers’ average debt-to-equity ratio stands at 33% and is estimated to continue improving over the next few years as its uncompleted projects receive TOP. We also note that most developers have substantially “de-risked” their Singapore residential exposure as the total number of unsold inventory is only a small proportion of its total exposure in the Singapore residential market. That said, based on our estimates, Singapore residential comprises of 5% -30% of total GAVs. This means that an expected drop in residential prices is unlikely to dent RNAVs significantly. With valuations already at 30% discount to P/RNAV, we believe that negatives are already priced in. In addition, property developers see better returns overseas and have been venturing and diversifying their exposures beyond Singapore, with key investment markets of London, Australia, Japan and China. For example, we have seen the likes of City Developments Limited (CDL), that has been pre-dominantly focused in Singapore, diversifying away from
Singapore through (i) recycling assets in Singapore through a newly formed investment vehicle, and (ii) acquiring properties in Japan, UK for development. The group continues to look outside for opportunities in the new year. Frasers Centerpoint Limited (FCL) delisted Australia-based Australand and now derives a substantial portion of its revenues from Australia. Developers like Hobee and UOL Group have also been investing in UK in recent years, in the chase for higher returns. Keppel Land has also recycled close to S$1.0bn worth of properties in 2014 and invested in development opportunities in Indonesia/Vietnam and Indonesia. Looking ahead, with limited land-banking opportunities in Singapore, we see developers continuing to venture overseas for opportunities to further diversify earnings and boost returns on equity (ROE). In addition, we believe that developers are likely to continue looking at asset-recycling strategies – divesting stabilised assets and redeploying proceeds overseas. We believe that CapitaLand Limited (CAPL) and Global Logistics Properties (GLP) are most likely to divest properties to their existing REITs in order to boost ROEs. For CAPL, completed and stabilised properties like Westgate Mall in Singapore and various malls in China might be ripe for recycling into their listed REITs. For GLP, management has previously alluded to potentially recycling c.US$500m worth of its Japan logistics properties into GLP J-REIT.
Developers exposure to Singapore residential (as %
of RNAV)
Developers Price-to-RNAV
SG Resi SG others
Overseas
CapitaLand 9% 25% 66%
City Dev 27% 52% 21%
Fraser Centrept Ltd 7% 35% 58%
Ho Bee 15% 56% 29%
Wheelock 30% 39% 32%
UOL Limited 5% 87% 8%
OUE Ltd 9% 56% 35%
Wing Tai (Jun 2014) 19% 20% 60%
Global Logistics Properties 0% 0% 100%
Source: URA, DBS Bank
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Disc to RNAV Mean +1 SD -1 SD
Industry Focus
Singapore Property
Page 20
6. Residential – Approaching a slippery slope
Key Assertions
New supply completions spiking in 2015/16 adds pressure to rentals and vacancy rates
Widening spread between HDB resale and private property prices affecting upgrader affordability
Residential market still early in the down-cycle; project prices to dip 12-15% over 2015-2016
2015 – Key Themes With the private property market continuing to operate in a tight financing and regulatory environment, we believe that the market remains in the early part of the down-cycle. As such, we think that a widely anticipated reversal in policy measures is unlikely in the near term. Looking ahead, we expect buyers’ sentiment to remain weak, which will have an overhang on transaction volumes in 2015. With a slew of completions flooding the market over 2015-2016, we expect vacancy rates to hike to 9%-10%, implying further pressure on rentals and prices. We forecasts volumes to dip to 8,000-9,000 units in 2015 and price to dip by between 12-15% over 2015-2016. Key themes for the residential market in 2015 are: A.Singapore property market in the early part of the
downturn
Home prices in 2014 softened for all sub-segments. 2014 was visibly a quieter year for property developers with prices and volumes declining as tighter financing and regulatory rules continued to bite following seven rounds of cooling measures over 2010-2013. The last of the lot, being the total debt servicing ratio (TDSR) framework, is seen as the most effective in halting the rise in prices of the Singapore property market. Since the institution of the TDSR framework in mid-2013, transaction volumes declined by a significant c.51% y-o-y in 2H14. Since then, we note that from the peak, prices have only dipped by only 3.9% till 3Q14, with the HDB resale market dipping by a wider 7.1% margin. The overall Singapore property price index (PPI) was down by 3.0% since the start of the year. This represents a c.3.9% decline in the index since the peak in 3Q13. However, properties in the Core Central region (typically representing the upper-mid to high end of the residential market), was the hardest hit, down -5.4% YTD, followed by properties in the
Rest of Central region (-4.0% YTD) and in the outside Central region which dipped marginally by -1.3%. HDB resale market the worst hit. The HDB resale market index, which has historically been the more resilient sub-segment of the property market, is the worst hit this time round, mainly due to tighter financing regulations (total debt financing ratio or TDSR) and selling restrictions. The index retraced back by 4.7% YTD 3Q14 (or 7.1% down from the peak) and is currently at 2012 levels. Primary transaction volumes collapsed by c.47% y-o-y as of 3Q14. Since the start of 2014, we have seen property cooling measures starting to take its toll on buyers’ sentiment and YTD 3Q14 transaction volumes tumbled c.47% y-o-y to 5,940 units. Despite a c.18% y-o-y (or 765 units transacted) rebound in Oct’14, this is short-lived as total primary sales volumes collapsed again in Nov’14 to 412 units. This means that total primary sales in 2014 was lower than 8,000 units for the year, less than half the total number of transactions in 2014. This will also represent one of the quietest years for primary property transactions since 2005. Speculators out – Subsale volumes shrank as secondary market volumes fell 47% y-o-y. Secondary transaction volumes also declined significantly as expectations of softer market conditions combined with hefty seller stamp duties (c.16%/12%/8%/4% of selling price if property is resold within 1/2/3/4 years of purchase) kept speculators away. Total transactions in the secondary market plunged c.47% y-o-y to c.4,043 units, with sub-sale transaction volumes now only contributing c.10% of total secondary volumes (vs c.15% over the past 10 years) and c.4% of total property transactions. Strong developer balance sheet & interest rates helped keep prices more sticky. We believe that property prices declining by a smaller degree compared to volume drops can be attributable to (i) developers' strong balance sheets and holding power after locking in strong sales over 2010-2013; and (ii) current low borrowing rates, which allow investors and homeowners to prefer holding on to their units and not sell, given low opportunity costs. However, weak holders might be forced to sell if expectations that prices will continue to drop and that interest rates will rise over 2015-2016.
Industry Focus
Singapore Property
Page 21
Residential transactions hit multi-year lows (down
47% y-o-y as of 3Q14)
Volumes slumped and prices dipped from impact of
TDSR
Source: URA, DBS Bank
Subsale volumes as a % of total secondary
transactions falls to 10%
Volumes in both the secondary and primary markets
slumped from impact of TDSR
Source: URA, DBS Bank
Low lending rates helped to negate the fall in
property prices
Developers have launched fewer units to clear existing
stock (sell-through rate >100% in 2014)
Source: URA, DBS Bank
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 9M14
Secondary Market Developer Primary Sales (EC) Developer Primary Sales
0%
5%
10%
15%
20%
25%
30%
-
2,000
4,000
6,000
8,000
10,000
12,000
Mar
-06
Aug
-06
Jan
-07
Jun
-07
No
v-07
Ap
r-0
8
Sep-
08
Feb-
09
Jul-
09
Dec
-09
Ma y
-10
Oct
-10
Mar
-11
Aug
-11
Jan
-12
Jun
-12
No
v-12
Ap
r-1
3
Sep-
13
Feb-
14
Jul-
14
Un its
Sub-Sales Resale Transactions % Subsale as total Secondary volumes
-
5,000
10,000
15,000
20,000
25,000
0%
20%
40%
60%
80%
100%
120%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 9M14
Total Units Launched Total Units Sold Sell Through Rate (%)
-
5,000
10,000
15,000
20,000
25,000
1H10 2H10 1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14
Units
Secondary Primary (include EC)
Post TDSR
190
195
200
205
210
215
220
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14
IndexUnits
Sales (Outside of Central Region) Sales (Rest of Central Region)
Sales (Core Central Region) PPI
-
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
01-Jan-06 01-Jan-08 01-Jan-10 01-Jan-12 01-Jan-14
(%)
3 Month SIBOR Rate
Industry Focus
Singapore Property
Page 22
All Residential Price Index (y-o-y and q-o-q change)
Source: URA, DBS Bank Residential Price Index and HDB index
Source: URA, DBS Bank Residential Price Indices – sub-segments remain on a downtrend (q-o-q)
Period All-Residential
Index
Landed Index Non-Landed Imdex HDB
Core Central
Region
Rest of Central
Region
Outside Central
Region
2Q13 1.0% 0.3% -0.2% 0.2% 3.8% 3.5%
3Q13 0.4% 0.3% -0.3% -0.9% 2.2% -0.9%
4Q13 -0.9% -1.0% -2.1% 0.4% -1.0% -1.5%
1Q14 -1.3% -0.7% -1.1% -3.3% -0.1% -1.6%
2Q14 -1.0% -1.7% -1.5% -0.4% -0.9% -1.4%
3Q14 -0.7% -1.8% -0.8% -0.4% -0.3% -1.7%
% Chg
(YTD 3Q14) -3.0% -4.2% -3.3% -4.0% -1.3% -6.2%
% Chg
(Peak) -3.9% -5.2% -5.8% -4.6% -2.3% -7.1%
3Q14
(index) 207.9 233.1 201.3 184.1 214.8 192.4
Source: URA, HDB, DBS Bank
-
50.0
100.0
150.0
200.0
250.0
300.0
1Q2006 1Q2007 1Q2008 1Q2009 1Q2010 1Q2011 1Q2012 1Q2013 1Q2014
Property Price Index - All Property Price Index -Landed
Property Price Index - Non-Landed HDB Resale Price Index
Moderating
Trend
207.9
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
0
20
40
60
80
100
120
140
160
180
200
220
240
2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1
Change over previous quarter Residential Property Price Index
Industry Focus
Singapore Property
Page 23
A.1 Weakening affordability
Drivers for private housing have been suburban condos. HDB upgraders have been major buyers of properties over the past few years. Over the past few years, one of the key drivers for the increase in volumes had been increase in sales for private residential units in the Outside Central Region (OCR). Since 2010, we have seen that the % contribution from sales in the OCR has increased from 46% of total transactions in 2010 to an average of 62-74% over 2011-2014. However, post the TDSR framework, we have seen both transaction volumes and % contribution from OCR falling to c.45-62%. The strong volumes seen in the OCR can be partly explained by the rise in buying activity from the HDB upgraders, as evidenced by the increase in composition of OCR home buyers with a HDB address to 68-69% since 2011, vs. 52-60% in prior years.
Upgrader demand to be curtailed as HDB Resale prices dip and are likely to see further weakness. We believe that the
strong demand from the HDB upgraders for new private residential units (especially in the outside central area) is due to (i) the strong run-up in HDB resale prices (HDB resale price index almost doubled over 2006-2012); and (ii) the hefty cash of valuations (COVs) that sellers can command above valuations of their HDB prices, which are paid upfront in cash. These most likely will go into the downpayment for a new house for the average aspiring HDB upgrader. However, tough ongoing property cooling measures targeting the cooling of HDB resale prices (removal of the COVs, limiting a new permanent resident ability to purchase a resale flat to three years after obtaining their PR status, loan restrictions), and a ramp-up in new supply of new built-to-order (BTO) flats has kept demand away and resulted in HDB resale prices posting a decline of 7.1% since they peaked in 2Q13. Due to a widening gap between HDB resale prices and the private residential indices (outside central area) as a proxy, we believe that affordability to “upgrade” is affected and will warrant a drop in prices in the private residential space.
% sales in Outside Central Region (OCR) rising pre-
TDSR
% of HDB addresses from a large portion of total
transactions
Source: URA, DBS Bank Revised HDB resale transaction process w/o COV Resale price index vs OCR price index
52%60% 63% 68% 69%
48%40% 38% 32% 31%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2010 2011 2012 2013 YTD2014
Private HDB
34%23% 25% 25%
9% 8% 10%19%
6%
30%
36% 34% 29%
24%18%
27%
36%36%
36% 42% 41% 46%
67%74%
62%
45%59%
-
5,000
10,000
15,000
20,000
25,000
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2007 2008 2009 2010 2011 2012 1H13 2H13 YTD14
Units
Sales (Outside of Central Region) Sales (Rest of Central Region)
Sales (Core Central Region) Total New Sales (Private)
Source: URA, DBS Bank
-
50.0
100.0
150.0
200.0
250.0
HDB Resale Price Index
PPI (Non-landed) in Outside Central region
Widening gap a rising risk for prices
Industry Focus
Singapore Property
Page 24
A.2 Rising Interest rates remain an emerging risk
Low interest rates are boosting “affordability”
currently. The current low interest rate environment remains a boon for buyers. With SIBOR rates continuing to remain low at rock bottom rates of c.0.3-0.4% and an average interest cost for loans at < 2.0%, we believe it continues to appear “affordable” for most buyers when taking up a mortgage either for owner-occupation and/or investment. While the recent TDSR framework has clamped down on over-leveraging, we believe that the risk of rising interest rates in the medium term poses a threat to buyers' affordability. We estimate that a 1% rise in interest for a S$1m mortgage loan at 1.5% with a 30-year tenure is c.S$500/mth. This increase is substantial in our view as it will mean a 2.1- to 6.3-ppt increase in interest obligations,. though the impact is likely to be felt more for households at HDB 4-room and 5-room/executive flats. As these households are most likely
buyers of a residential unit in the outside central region, this segment will most likely be most vulnerable to the risk of interest rate increase in the medium term. In addition, we note from a recent financial stability review 2014 by the Monetary Authority of Singapore (MAS) that the total ratio (TDSR) has effectively reduced leverage in the system – borrowers with more than one mortgage has reduced from 15% of total loans as of 3Q14 – limiting the threat of overleveraging. That said, we still believe that owners of multiple properties are expected to be impacted more if interest rates rise, especially with market rental yields declining. YTD 3Q14 residential rental index have declined by 2% from the peak to c.3.0% currently, and we expect further pressure when new home competition spikes further over 2015-2016 and vacancy levels inch up towards c.9-10%.
Low lending rates helped to negate the fall in
property prices
A S$1m mortgage 1-ppt hike in interest rates will
increase interest costs by 2.1-6.3ppts
Source: URA, HDB, DBS Bank
Rental Index weakening since 1Q14 Rental Yield decline precludes a drop in prices
Source: URA, HDB, DBS Bank
-
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
01-Jan-06 01-Jan-08 01-Jan-10 01-Jan-12 01-Jan-14
(%)
3 Month SIBOR Rate
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
100.0
120.0
140.0
160.0
180.0
200.0
220.0
1Q2004 1Q2006 1Q2008 1Q2010 1Q2012 1Q2014
Index
Property Price Index Rental Yields
43%
31%
18% 14%
6.3%
4.5%
2.6%2.1%
0%
10%
20%
30%
40%
50%
60%
HDB 4 Room HDB 5 Room & Executive
Condo Landed
% of monthly household
income% incresae in interest obligations
% of monthly income spent on mortgage
(15.0)
(10.0)
(5.0)
-
5.0
10.0
15.0
20.0
-
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
180.0
200.0
1Q2004 3Q2005 1Q2007 3Q2008 1Q2010 3Q2011 1Q2013 3Q2014
Ppt ChgIndex
QoQ Change (ppt) - RHS Rental Index (Non-Landed) - LHS
Industry Focus
Singapore Property
Page 25
B. Supply completions to weigh down on prices
Flood of supply completions to spike in 2015-2016. According to URA, total annual private property completions over 2015-2017 are estimated to be c.20,500 units per annum, implying a CAGR of 6.2%. This is close to an average of c.3.5% growth over the past decade. We note that 2016 will see a high of 23,456 units being completed and entering the market. In addition, we estimate a further c.100,000 (or 21,000 units per annum) new built-to-order (BTO) HDB flats currently under construction and will complete progressively over the next three years. However, we believe these mainly cater to self-ownership and should not be competing with other private residential unit owners who might be looking for tenants. Singapore residential market turning into a “surplus” situation from 2015 onwards Property market to turn into an over-supply situation. We believe that fundamental demand drivers for new housing are dependent on household formation which is largely based on population growth and marriages. While we note that historical demand for housing over 2005-2009 has been driven partly by an accelerated growth in total population in Singapore (estimated to average c.3.5% over 2005-2009) and is mainly from an increase in foreign population in Singapore, while marriages have stayed fairly constant at c.25,000/year over the past decade. We estimate that the increase in the PPI over the past few years is fueled by a lag in new completions compared to household formation/new foreign demand (average c.8,000 units completed/year, average vacancy rate of c.5% over the period).
Looking ahead, with a projected slower population growth of 1.3% (due to tighter immigration and foreign labour policies) and assuming an average household size of c.3.5 persons, we project that average annual demand will be c.17,000 per annum (made up to 7,800 new units from residents and the remaining 9,200 from foreign demand). Supply growth to outweigh demand growth; vacancy rates to increase to c.9-10%. We believe that the Singapore residential market faces an oversupply situation, as a consequence of (i) slowing population growth; and (ii) a ramp-up in supply completions from 2015 onwards, which will result in a surplus in residential units. Based on our estimates, there will be a net surplus of c.25,000 new residential units from 2016 onwards which will more than double to 50,000 units in 2017. Assuming that (i) new HDB BTO units are built purely for owner occupation, and (ii) significant numbers of private residential units are purchased with the intention to rent, we believe that a heightened supply in completions skewed towards 2015-2016 in the private residential space will put pressure on occupancy levels. With a vacancy rate of already c.7.1% as of 3Q14, the deluge of new supply entering the market is expected to edge vacancy rates higher to the 9-10% level, which will add further pressure to rental yields as these units compete for tenants in a slowing market. Indications of a possible price decline in the coming years can taken from (i) weakness in the PPI whenever the average vacancy rates hikes above c.8.0%; and (ii) when the housing to population-to-housing ratio turns down. As such, we forecast residential prices to decline by c.15% over 2015-2016.
Key Population and Housing Data
2010 2014 2015F 2016F 2017F
Total Population ('000) 5,077 5,470 5,541 5,613 5,686
Growth Rate 1.7% 1.3% 1.3% 1.3% 1.3%
Total Supply of housing ('000) 1,167 1,281 1,310 1,355 1,400
Total Resident Households ('000) 1,146 1,202 1,231 1,274 1,317
Est. Foreign Household ('000) 21 79 79 81 83
Housing to Population Ratio (x) 4.3 4.3 4.2 4.1 4.1
(Deficit)/Surpus (0.9) (2.5) 20.6 25.9 25.9
Vacancy Rate 5.0% 7.1% 8.3% 9.1% 9.9%
Source: URA, HDB, DBS Bank
Industry Focus
Singapore Property
Page 26
Population Growth (2001-2017F) Population to housing stock ratio
Source: URA, DBS Bank
Private residential completions spike over 2015-2016
(Landed & Non-landed)
Total Supply completions (HDB and Private)
Source: URA, DBS Bank
Market to see a surplus in housing units in 2016 Vacancy Rates and PPI movement
Source: URA, HDB, DBS Bank
0
5,000
10,000
15,000
20,000
25,000 Units
Average c.10,000 units
Average c.20,500 units
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000Residential completions
Private Residential Completions HDB Completions
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
-
1,000
2,000
3,000
4,000
5,000
6,000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total Foreign Population ('000) Total Resident Population ('000)Growth in Population (%) Average Growth Rates
3.0
3.2
3.4
3.6
3.8
4.0
4.2
4.4
4.6
4.8
-
50.0
100.0
150.0
200.0
250.0
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
‐
50.0
100.0
150.0
200.0
250.0
(50,000)
(40,000)
(30,000)
(20,000)
(10,000)
‐
10,000
20,000
30,000
40,000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Surplus/Deficit(units)
Change in Dwellings URA PPI (RHS)
Surplus
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
‐
50.0
100.0
150.0
200.0
250.0
1990 1993 1996 1999 2002 2005 2008 2011 2014 2017
(%)Index
Property Price Index (LHS)
Vacancy Rate (RHS)
Industry Focus
Singapore Property
Page 27
C. Limited land banking opportunities in 1H15
Further cuts in GLS sites. The Ministry of National Development (MND) continue to cut back on total sites available in the latest 1H15 government land sales (GLS) programme, indicating further cautiousness from the authorities. A total of 15 residential sites that can yield up to 8,765 housing units are available for bidding. Only six private residential sites, including one EC site, which can yield about 3,020 private residential units, are available on the confirmed list, which includes 490 EC units.
The reserve list, where sales will be triggered only if a minimum price is achieved, contains nine private residential sites, including one EC site, or a potential 5,750 private residential units.
GLS programme continues to tighten
Source: URA, HDB, DBS Bank
1H15 Government Land Sales Programme
S/N Location Site area (ha)
Proposed GPR
Est. No. of Housing Units
Est, No. of hotel rooms
Estimated commercial space (sqm)
Estimated launch date
Sales agent
CONFIRMED LIST 2H15
Residential Sites 1 Sturdee Road 0.61 3.5 265 - - Feb-15 URA
2 Tampines Avenue 10 (Parcel D) 1.57 2.8 490 - - Mar-15 URA
3 Dundee Road 1.05 4.9 645 - - Apr-15 HDB
4 Lorong 6 & 4 Toa Payoh 1.22 3.5 535 - - Apr-15 HDB
5 Choa Chu Kang Avenue 5 (EC) 1.64 3 490 - - May-15 HDB
6 West Coast Vale(2) 1.92 2.8 595 - - Jun-15 URA
Total (Confirmed List) 3,020 - - RESERVE LIST Residential sites 1 Stirling Road 2.11 4.2 1,110 - - Available URA
2 Alexandra View (Parcel A) 0.84 4.9 400 - 2,000 Available URA
3 New Upper Changi Road / Bedok South Avenue 3 (Parcel B)
2.44 2.1 570 - - Available URA
4 Bartley Road / Jalan Bunga Rampai 0.47 2.1 115 - - Available URA
5 Siglap Road 1.96 3.5 760 - - Available URA
6 Lorong Lew Lian 1.4 3 465 - - Available URA
7 Tampines Avenue 10 (Parcel C) 2.17 2.8 675 - - Available URA
8 Margaret Drive 0.48 4.6 275 - - Available URA
9 Yio Chu Kang Road (EC) 1.85 2.8 520 - - Jun-15 HDB
Commercial & Residential Sites
10 Holland Road 2.3 2.6 570 - 13,500 Dec-14 URA Commercial Sites 11 Beach Road 2.1 4.2 - - 88,200 Available URA
12 Woodlands Square 2.45 3.5 285 - 60,030 Jun-15 URA White Sites 13 Marina View / Union Street 0.78 13 - - 101,400 Available URA
Total (Reserve List) 5,745 - 265,130
Total (Confirmed List and Reserve List) 8,765 - 265,130
Source: URA, HDB, DBS Bank
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
1H06 1H07 1H08 1H09 1H10 1H11 1H12 1H13 1H14 1H15
Units
Reserve List
Confirmed List
Industry Focus
Singapore Property
Page 28
D.Policy Measures are here to stay, for now
“Prices have yet to correct meaningfully” – signaling that policy measures will stay in the interim. With transaction volumes drying up and market already in decline, there have been calls by developers and market observers to the government at lifting some of the more “cyclical measures” like the sellers’ and buyer-stamp duties. However, signals from the government in recent times have put paid to such expectations and we believe that unless we see a more substantial or steep decline in prices, we are not likely to see any loosening in measures in the interim.
With the Singapore property market still at the start of a decline, we believe that it might be premature to reverse any of the policy measures in place, especially when the current interest rate environment is still low and we run the risk that a premature reversal of the tightening measures may result in a further increase in property prices again. However, we believe the scenarios that might warrant a re-look at policies will be a marked drop in prices in a certain quarter or a potential tweak in certain policies on a selective basis. On that front, “cyclical measures” such as the buyer stamp duties/seller stamp duties which have been effective in curbing speculative demand might be re-looked at if transaction volumes continue to remain tepid over 2015-2016.
Singapore Property Price Index and Cooling Measures
Source: URA, HDB, DBS Bank
50
70
90
110
130
150
170
190
210
230
1Q10 3Q10 1Q11 3Q11 4Q11 3Q12 1Q13 2/ 3Q134Q12
Adjustment to LTV
Se ller's Stamp Duty
HDB regulations
Additional Buyers' Stamp Duty
TDSR
Industry Focus
Singapore Property
Page 29
Summary of Cooling Measures
Date Policy Measures
14-Sep-09 Removal of Interest Absorption Scheme and Interest Only Housing Loans for private residential projects Resumption of Government Land Sales (GLS) Confirmed List sales Non-extension of property measures from Budget 2009
20-Feb-10 Introduce Sellers Stamp Duty (SSD) for private residential property– not applicable to HDB flats o 1% for the first S$180,000, o 2% for the next S$180,000 and o 3% for the balance for property and land bought and sold within one year
Loan-to-Valuation (LTV) o Lowered from 90% to 80% for private property, ECs, HUDC, HDB and DBSS flats. o Loans granted by HDB for HDB flats remain at 90%
5-Mar-10 HDB o Minimum Occupation Period (MOP) for non-subsidised HDB flats extended to three years from 2.5 years for
flats with HDB concessionary loans and one year for flats with non-HDB concessionary loans o Introduction of non-Malaysian PR quota in HDB estates o Restructuring of non-Singaporean HDB housing subsidy
30-Aug-10 SSD o Increase the holding period for SSD from one to three years with graduated stamp duty over this period
LTV o Buyers with more than one housing loan at the time of new housing purchase will have to increase in
minimum cash payment from 5% to 10% of valuation limit o Lower LTV for multiple mortgage holders from 80% to 70%
HDB o For HDB dwellers, households with S$8,000-10,000 monthly income are allowed to buy DBSS with a
S$30,000 grant o Increase supply of BTO flats to 22,000 units o Shorten completion of BTO flats to 2.5 years o Increase MOP for non-subsidised HDB flats from three to five years o Disallow concurrent ownership of HDB flats and private property within MOP
14-Jan-11 SSD o Increase SSD period from three to four years, o Raise SSD rates to 16%, 12%, 8% and 4%
LTV o Lower LTV for non-individual purchasers to 50% o Lower LTV for housing loans for individual buyers from 70% to 60%, o First-time mortgage holders still enjoy LTV at 80%
15-Aug-11 HDB o Increase supply of BTO flats to 25,000 in 2012, in addition to 25,000 in 2010 o Raise monthly household income ceiling to $10,000 from S$8,000 for BTO buyers and from s$10,000 to
S$12,000 for EC buyers o Increase supply of rental housing to low income households
8-Dec-11 Introduction of Additional Buyers Stamp Duty (ABSD) o 10% for foreigners and non-individual buyers, o 3% for PRs buying second and subsequent properties, and o 3% for Singaporeans buying third and subsequent properties
5-Sep-12 URA issued new guidelines on shoebox housing units i.e. those less that 50sm/unit. o From Nov 4, 2012, the maximum number of units that can be built on a development site for non-landed
private residential developments (including ECs) outside of the Central Areas (suburban areas) will be capped based on a ratio of maximum allowable GFA (excluding bonus GFA) over the minimum average of 70sm/unit
o For developments located in areas that face more severe infrastructure conditions, such as the Kovan, Joo Chiat, Jln Eunos and Telok Kurau areas, the maximum number of dwelling units is calculated based on an average 100sm/unit
Industry Focus
Singapore Property
Page 30
Date Policy Measures
6-Oct-12 LTV restrictions o Tighter residential mortgage loan tenures capped at 35 years for individual and non-individual buyers o LTV for non-individual buyers lowered to 40% o For borrowers of second and subsequent mortgages, LTV lowered to 40% for loans >30 years or extend
beyond retirement age of 65 years o LTV of 60% for first-time borrowers beyond retirement age
21-Nov-12 HDB increase supply of BTO flats to 27,084 units in 2012, plans to release another 20k units in 2013
27-Dec-12 Introduction of the Silver Housing Bonus (SHB) and Enhanced Lease Buyback Scheme (LBS) by HDB, to be implemented from February 1, 2013. o Under the SHB, the CPF top-up requirement has been lowered to S$60,000 per household (subject to a
S$100,000 cap on cash proceeds for those who have not achieved the prevailing minimum sum o Furthermore, the S$20,000 bonus will be given fully in cash o Enhancements to the LBS include lowering CPF top-up requirement as well as relax the eligibility criteria to
allow more elderly to qualify
12-Jan-13 ABSD for private residential purchases by Singaporean buyers o First purchase: 0% o Second purchase: 0% to 7% o Third purchase: 3% to 10%
ABSD for private residential purchases by Singapore PRs, o First purchase: 0% to 5% o Second and subsequent purchases: 3% to 10%
ABSD for private residential purchases by foreigners and non-individuals o First and subsequent purchases: 10% to 15%
LTV for private residential property o First housing loan at 80% (or 60% if loan tenure is >30 yrs or borrower extends past age of 65) o Second housing loan, LTV lowered from 60% (or 40% for loan tenures of more than 30 years or borrower
more than 65 years old) to 50% (or 30% if loan tenure is more than 30 years or borrower is older than 65 years old)
o Third and subsequent loans, from 60% (or 40% is loan tenure more than 30 years or borrower more than 65 years old) to 40% (or 20% if loan tenure is more than 30 years or borrower is older than 65 years old)
Cash down payment for private property purchase o First property: 5% (for LTV of 80%) to 10% (for LTV of 60%) o Second and subsequent properties: 10% to 25% o Non-individual borrowers: 20% to 40%
HDB o Mortgage service ratio for housing loans granted by financial institutions to be capped at 30% of
borrowers' gross monthly income or 35% for HDB loans, from 40% o PRs who own a HDB flat cannot sublet the whole flat o PRs who own a HDB unit must sell their flat within six months of completion of private residential property
from previous concurrent ownership of minimum occupation of fulfilled, from July 1, 2013 o Tighter terms will apply to HDB loans and use of CPF funds to purchase a HDB flat with less than 60 years
lease remaining For ECs
o Maximum strata floor area of new EC units will be capped at 160sm o Sales of new dual-key ECs will be restricted to multi-generational families o Developers of future EC sites under the GLS will be allowed to launch units for sale 15 months from the
date of award or after physical completion, whichever is earlier o Private enclosed space and roof terraces will be included in gross floor area
Introduction of Sellers Stamp Duty of 15%, 10% and 5% for properties and industrial land sold within three years from date of purchase
Industry Focus
Singapore Property
Page 31
Date Policy Measures
29-Jun-13 MAS introduces new total debt servicing ratio (TDSR) o Maximum total debt limit of 60% calculated by taking into account monthly repayment for the property
loan as well as monthly repayments of all outstanding property and non-property debt obligations of the borrower
o MAS requires FIs to apply a specified medium interest rate of 3.5% for housing (4.5% for non-housing) loans or prevailing market interest rate when calculating TDSR
o FIs are to apply a haircut of 30% to all variable and rental income and amortise the value of eligible financial assets taken into account when computing TDSR
o MAS requires borrowers' names on a property to be the mortgagors of the residential property for which the loan is taken, guarantors who are standing guarantee for borrowers who do not meet the TDSR be brought in as co-borrower and in the case of joint borrowers, use the income weighted average age of the borrower when applying for a loan
28-Aug-13 HDB policy changes o Special Housing Grant (SHG) of up to $20,000 for 4-room or smaller flats extended to households earning
up to $6,500 to include middle income families o Income ceiling for this grant for singles raised to $3,250 o Step Up grant of $15,000 for 2-room flat owners moving to 3-room flats in non-mature estates o Older set of parents under the Multi Generation Priority Scheme can now opt for 3-room flats o New and larger three-generation flats of 115sm will be piloted in Yishun starting from the next sales
exercise o HDB loans reduced from maximum 30 years to 25 years, with repayment capped at 30% of monthly
income o Bank loans for HDB flats will be brought down from 35 years to 30 years including those under DBSS o New loans with tenures exceeding 25 years and up to 30 years will be subject to tighter LTV limits o New PRs will have to wait three years to buy a HDB resale flat
Source: URA, HDB, MND, MAS, DBS Bank
Industry Focus
Singapore Property
Page 32
7. Retail – Retailers to double down on well-performing malls
Key Assertions
Muted retail sales outlook poses a risk to retailers’ occupancy costs and rental reversions
Consolidation among retailers to intensify in 2015 amid rising labour costs and labour shortage
New malls pose a risk to tenant sales at existing malls, but threat of tenant poaching is minimal
Retail REITs will remain defensive, given well-located assets, good management track record and staggered WALE
1. More upbeat outlook for 2015, but occupancy costs to
remain under pressure
Choppy retail sales in 2014. October’s RSI ex-motor vehicles grew 1.6% y-o-y in October, the second consecutive month of growth, and the highest observed since August 2013. While this is positive news in that it has stemmed a six-month downward trend, we note that retail sales have been essentially range-bound since late 2012, which indicates that, in nominal dollar terms, retailers aren’t earning more today than they were two years ago. Retail sales have been flat for the last two years
Source: CEIC, Singstat, DBS Bank Leakage of retail spend into travel and e-commerce. As discussed in our previous report “Diving Deep into the Nuances of the Retail Sector” dated 17 September 2014, lacklustre retail spending belies positive wage growth of 1.5-2%, as forecasted by our economists for 2014. We posited the potential “leakage” of the consumer dollar into other expenditure categories such as travel and e-commerce, which are not captured in the RSI, and do not feed directly into the revenues of physical retailers.
RSI ex-motor vehicle growth: back to black, but not out
of the woods yet
Source: CEIC, Singstat, DBS Bank Strong currency and cheap travel increase the attractiveness of shopping overseas. The strong Singapore dollar has increased the relative value of travelling and shopping abroad, and the proliferation of low cost carriers (LCCs) such as Tiger Airways, Jetstar and AirAsia in recent years has substantially lowered the barriers to overseas holidaying for residents. Cheaper overseas travel has therefore made it easier for people to travel overseas for weekend “shopping trips” to arbitrate on currency differences to purchase the same items at lower prices, representing lost revenue for local retailers. Decline in tourist spend also a contributing factor. Retail sales were partially eroded by the decline in Chinese visitor arrivals for YTD 2014 and a drop in tourism shopping receipts, as Chinese tourists are the main contributors to tourist shopping. Whether or not shopping spend will improve will depend on the return of the Chinese tourists, as well as the ability for Singapore to retain its attractiveness as a “unique” and favoured shopping destination. Resident expenditure abroad as a % of Private
Consumption Expenditure (PCE)
90
95
100
105
110
115
120
Jan-
10
Apr
-10
Jul-1
0
Oct
-10
Jan-
11
Apr
-11
Jul-1
1
Oct
-11
Jan-
12
Apr
-12
Jul-1
2
Oct
-12
Jan-
13
Apr
-13
Jul-1
3
Oct
-13
Jan-
14
Apr
-14
Jul-1
4
Oct
-14
2010=100
Positive momentum over the last two months simply a payback for a torrid 1H14
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
Jan-
10
Apr
-10
Jul-1
0
Oct
-10
Jan-
11
Apr
-11
Jul-1
1
Oct
-11
Jan-
12
Apr
-12
Jul-1
2
Oct
-12
Jan-
13
Apr
-13
Jul-1
3
Oct
-13
Jan-
14
Apr
-14
Jul-1
4
Oct
-14
y - o-y growth
14.0%
14.5%
15.0%
15.5%
16.0%
16.5%
17.0%
17.5%
18.0%
0
5,000
10,000
15,000
20,000
25,000
30,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
% of PCES$'m Residents' Expenditure Abroad
Residents' Expenditure Abroad as % of PCE
Source: CEIC, Singstat, DBS Bank
Industry Focus
Singapore Property
Page 33
Difficult transition to e-commerce for many physical retailers. Many retailers have identified e-commerce as a key threat to retail sales. Internet platforms are able to offer cheaper prices for many goods as they need not pay shop rent, thereby allowing them to undercut physical retailers. On their end, many physical retailers find it difficult to implement successful e-commerce strategies due to limited product differentiation (for retailers without proprietary products), limited platform differentiation as customer service is not easily translated online, and conflicts with brand principals who often run their own online stores, thereby cannibalising the franchisee’s in-store revenues. Rising occupancy costs observed as sales growth has not caught up with rental growth. Looking towards 2015, we expect stronger retail sales growth than was seen in 2014, as lower oil prices put money in consumers’ pockets. That said however, we believe that occupancy costs will remain under some pressure. Based on RSI growth (compared against three years ago to mirror typical rental reversionary cycles), we find that, barring nominal sales growth of 10% in 2015, sales will still be unable to keep up with average reversions of 6% (implying c.2% rental escalations p.a.), indicating renewed occupancy cost pressures. These observations were echoed by retail REIT managers during the CY3Q14 results briefings, and beg the question of whether historical reversions of 6% are sustainable going forward. CMT’s portfolio reversions vs. RSI growth over 3 years
Source: DBS Bank estimates 2. Retailers: consolidation efforts to intensify amid
rising labour costs and labour shortage
Overall costs to increase amid rising levies, reduced foreign headcount and low unemployment. In an industry which is heavily reliant on manpower due to its customer-oriented nature, retailers are now facing escalating costs stemming from the combination of minimum wage policies, foreign labour policies and low unemployment rates. Retailers are hit
on two fronts: escalating labour costs which impinge on their profitability; and the lack of available labour for expansion. Foreign labour policies continue to bite. The Ministry of Manpower’s (MOM) reduction in the Dependency Ratio Ceiling (DRC) – which determines the number of foreign workers a firm is permitted to hire based on the number of local staff it has – will become effective for all retailers in July 2015, which means that companies whose total number of foreign staff currently exceeds the new DRC limits are facing c.20-30% reductions in existing foreign headcount across all hiring levels. Furthermore, the final hike in levies will, for many retailers, eliminate the theoretical cost savings from the reduction in headcount. Low unemployment rate pushing up labour costs. Singapore’s low unemployment rate has made it more difficult for retailers to hire local staff, given the relative unattractiveness of service staff positions, the historically temporary nature of the job, and perception that such jobs are low paying. As a result, retailers have been forced to raise the starting pay for locals as they seek to retain existing staff and entice new job seekers to fill vacant positions. Coupled with rising costs associated with hiring foreign labour, retailers are hard-pressed to maintain profitability, especially in a weak retail sales environment. Retailers’ consolidation to intensify in 2015. Given current trends of (a) labour shortages, (b) rising labour costs, and (c) future labour reductions, retailers will need to consolidate their operations in order to maximise their own profitability. As retailers seek to selectively close underperforming stores and shift workers into better performing ones, we reckon that they will choose to remain in malls that are (i) sufficiently diverse to facilitate trip-chaining or cater to a variety of interests, (ii) large enough to attract higher levels of shopper traffic, and (iii) located close to transport hubs, thereby making them more accessible to shoppers. Looking ahead, we expect the consolidation process to intensify further, as retailers seek to comply with reduced foreign worker quotas by July 2015. 3. New malls could add further pressure to existing
retailers’ tenant sales
The swing to the suburbs. 2015 will be a story of the suburbs, driven by the openings of five new shopping malls and one newly refurbished mall in 4Q14. The opening of Seletar Mall in Sengkang offered much needed retail space in the Northeast region, which had the lowest retail space per resident population density in Singapore (<600sqm/resident) as of 2013. In the East, the newly refurbished Eastpoint Mall opened after nearly two years of refurbishment works, joining East Village, the strata titled retail component of a mixed development project located at Simpang Bedok, which
0
2
4
6
8
10
12
14
16
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Jan-
04
Jul-0
4
Jan-
05
Jul-0
5
Jan-
06
Jul-0
6
Jan-
07
Jul-0
7
Jan-
08
Jul-0
8
Jan-
09
Jul-0
9
Jan-
10
Jul-1
0
Jan-
11
Jul-1
1
Jan-
12
Jul-1
2
Jan-
13
Jul-1
3
Jan-
14
Jul-1
4
Re versions (%)RS I Growth
over 3 years agoRSI ex-motor vehicles (LHS)CMT portfolio reversions (%) RHS
Re tail sales growth vs 3 years pr ior: worse than during GFC
Industry Focus
Singapore Property
Page 34
opened in September. Meanwhile, new retail space continued to be added in the West region, with the opening of the 56k-sqft hillV2 at Hillview Rise, and NTUC’s 80k-sqft Warehouse Club, located at Benoi Road. Looking to 2015, the suburban flavour of new retail space is set to continue, with major openings anticipated in Jurong East (Big Box), Punggol (Waterway Point) and Paya Lebar (Paya Lebar Square). % of new retail mall area by region
Source: DBS Bank estimates Breakdown of new retail space by region
Source: URA, Savills, CBRE, Straits Times, DBS Bank estimates Landlords banking on F&B and education. The new suburban malls have put F&B, services and education at the front and centre of their offerings – a marked contrast to the chain store/franchise brand theme that featured prominently in the mall openings of 2H13/1H14. This shift represents the culmination of efforts over the past few years by existing landlords to tap into residents’ increasing appetite for eating out and willingness to spend on accessible services. In its 2012-2013 Household Expenditure Survey, Singstat reported that food serving services (associated with dining out) accounted for 64% of household expenditure on food, an increase from 62% in 2012/13 and 58% in 2002/03. According to media sources, F&B tenants in Seletar Mall and
One KM occupy c.30% of retail area, while 65% of the shops at hillV2 is dedicated to F&B offerings. Furthermore, the newly refurbished Eastpoint Mall dedicated its 13% expansion in NLA to F&B tenants. Given carpark load restrictions, it would appear that most of these new malls have maxed out their F&B offerings, mirroring the trend observed among the retail REIT landlords to steadily increase F&B offerings as a % of portfolio NLA. Similarly, expenditure on education services has grown at a CAGR of c.6% between 2007/8 and 2012/13, keeping apace of average monthly household income growth of c.5% p.a. over the same period. Composition of NLA for CMT (2009-2013)
Source: CMT, DBS Bank Composition of NLA for FCT (FY07-14)
Source: FCT, DBS Bank
4% 3% 3% 5% 6% 6% 6% 5%
22% 22%25%
25% 26% 26%28% 31%
3% 3%
4%
8%8% 9%
9%8%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
2007 2008 2009 2010 2011 2012 2013 2014
% of NLA
Beauty, Hair, Cosmetics, Personal Care
Food & Restaurants
Services/Education
15% 16%18% 19% 19%
3%4%
4% 3% 4%
2% 3%
5%5%
6%
6% 6%
0%
5%
10%
15%
20%
25%
30%
35%
2009 2010 2011 2012 2013
% of NLA
F&B ServicesEducation Beauty & Health
Orchard32%
Downtown Core8%
Fringe Area16%
Outside Central Region44%
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2014 2015 2016 2017 2018
sqft
Orchard Downtown Core Rest of Central Area Fringe Area Outside Central Region
Industry Focus
Singapore Property
Page 35
New malls could impact tenant sales at existing malls. As has been observed in the Jurong Lake District in early 2014, a substantial increase in retail space inevitably generates some disruption in shoppers’ travelling and shopping patterns. Given the concentration of new malls in the East and Northeast regions and their positioning (focus on F&B,
education and services) which competes directly with existing malls, we anticipate some weakness in tenant sales for the likes of Tampines Mall (owned by CMT) and Changi City Point (owned by FCT), where F&B, education, services, and beauty & health constitute 42% and 53% of NLA respectively.
Location of new mall openings in 2014/15 vis-a-vis population retail density per postal district
Source: Seacitymaps, Singstat, URA, DBS Bank estimates
>2000 sqm/resident
1000 to 2000 sqm/resident600 to <1000 sqm/resident400 to <600 sqm/resident
<400 sqm/resident
EastpointMall
SeletarMall
East Village
hillV2
Warehouse
Club
One KM
Paya Lebar
Square
Big Box
Waterway Point
Opening in 2015
Opened
Industry Focus
Singapore Property
Page 36
4. Retail REITs will remain resilient despite challenges in
the retail scene
Pressure on landlords to retain tenants. Looking into 2015, a major challenge for landlords would be to retain existing tenants in an environment where many retailers are consolidating their operations or not expanding. As retailers delay their decision-making and consider other available options, we believe that landlords must diversify their tenant base and lease structure beyond the typical chain-store tenants or 3+3 years fixed rent leases. Landlords that decline to adopt innovative and more flexible leasing options could face increasing competition for a static or marginally declining pool of tenants. However, new retail space unlikely to compete for tenants in the next three years. Despite the increase in retail supply in suburban areas, we don’t think that they will detract from existing demand, given that new tenants are locked in for an average of three years. As such, rental space that is available for renewal or new letting will still be limited to the more mature malls in the next few years. Well-located and well-managed assets should weather the choppy retail climate. That said, the impact of the various issues discussed above will not be uniform across all malls in Singapore. Retailers would prefer to remain in malls that are large and diverse enough to generate recurring traffic, and are close to important transport hubs such as MRT stations or bus interchanges for easy access, and malls that are able to offer these qualities will outperform other smaller and less well-located malls. REIT-owned malls are well positioned to weather near-term challenges. We believe that in the next year, retail REITs will benefit the most from current consolidation efforts, as tenants would prefer to consolidate in their malls, given the good location of their malls, active asset enhancement and upkeep, as well as their strong advertising and marketing power which generates consumer awareness and shopper traffic. Retail REITs will remain defensive in the near term. We estimate that REIT-owned malls are still the minority retail space in Singapore, accounting for only c.23% of all shop space, and 34% of privately held shop space. As such, to the extent that REIT-owned malls are able to generate positive sales growth, they will be able to command a premium in rents relative to competitors, and can better weather downward pressure on rents. Given strong demand for REIT-owned malls in general, we expect that rental reversions for
retail REITs will remain positive, albeit at lower-than-historical levels of 6% for smaller or underperforming malls. Staggered lease expiry schedule will delay impact to rents. Majority of retail REITs have weighted average lease expiry (WALE) profiles of 2-3 years, which will ensure that barring any pre-terminations, the impact of declining profitability on rents will be more measured than acute for landlords. Most retail REITs, with the exception of FCT, have <30% of leases expiring in 2015, which should protect substantial portions of portfolio income in the year ahead. Despite significant lease renewals due 2015, we believe that FCT should continue to enjoy stable reversions as majority of expiries will be at Causeway Point and Northpoint, the REIT’s two largest malls, which have monopoly over retail space in the north of Singapore. We prefer Orchard Road malls to suburban malls. We believe that rents in Orchard Road will outperform those in suburban areas, due to the nature of tenants in each region. Within Orchard Road, a large proportion of tenants are brand principals themselves, who, by virtue of having better profit margins than franchise holders of the same brand, are able to absorb higher occupancy costs, and willing to pay higher rents for the sake of maintaining brand visibility within Orchard Road. As such, landlords have more wiggle room when negotiating rent increases. Tenants in suburban malls have less margin for error – increases in rent that are not accompanied by a rise in tenant sales could push occupancy costs above the 16-18% threshold for general retailers and the c.20% threshold for F&B tenants. As such, landlords of suburban malls also have less room to manoeuvre for rent increases, well knowing that excessive demands could push the tenant out of the mall entirely. For 2015, we have assumed 0-1.5% annual rental growth for suburban malls, and c.2-2.5% p.a. growth for Orchard Road malls. Staggered WALE profile for retail REITs
Source: Various REITs, DBS Bank
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
FY15/16 FY16/17 FY17/18 >FY17/18
CMT
CCT (Retail + hotel)
Suntec (retail)
FCT
SPH REIT
MCT (retail)
SGREIT
OUEHT (retail)
Industry Focus
Singapore Property
Page 37
Supply of retail space, 2014-2018
Mall Location Developer Area (sqft) 2014 1,670,742 Orchard Gateway Orchard Road OCBC/Great Eastern Holdings/UE 166,800 268 Orchard Orchard Road Ngee Ann 147,500 Shaw Centre (addition) Orchard Road Shaw 213,558 Marina Square (extension) Raffles Boulevard Marina Centre Holdings Pte Ltd 80,515 One Raffles Place (extension) Raffles Place OUB Centre Limited 60,709 Sports Hub Nicoll Highway Singapore Sports Hub 260,000 The Seletar Mall Sengkang West Avenue SPH (70%), UE (30%) 188,000 One KM Tanjong Katong Road UOL Property Investments Pte Ltd 204,000 Warehouse Club Benoi Road/Joo Koon Circle NTUC Fairprice Co-operative Ltd 80,000 Eastpoint Mall AEI Simei Street NTUC Income 214,161 East Village Upper Changi Road World Class Land hillV2 Hillview Rise Far East Organisation 55,500 2015 1,438,782 Paya Lebar Square Paya Lebar Road Low Keng Huat, Guthrie, Sun Venture Group 200,000 Capitol Piazza North Bridge Road/Stamford Road Perennial Real Estate 200,000 Galaxis Fusionopolis Place Ascendas 44,369 Eon Shenton Shenton Way 70 Shenton Pte Ltd 5,167 Centropod @ Changi Changi Road RP East Pte Ltd 18,299 Alexandra Central Alexandra Road Cel Alexandra Pte Ltd 50,591 Commerz @ Irving Irving Place Oxley Vista Pte Ltd 36,000 The Promenade@Pelikat Jalan Pelikat Oxley Vibes Pte Ltd 83,421 Waterway Point Punggol Central FCL/FEO/Sekisui 370,000 South Beach Tower Beach Road South Beach Consortium Pte Ltd 101,935 Big Box Jurong East Street 11 TT International Ltd 329,000 2016 308,167 Tanjong Pagar Centre Wallich Street Guocoland 139,717 DUO Galleria Fraser Street Ophir-Rochor Commercial Pte Ltd 54,000 Hillion Mall Jelebu Road Sim Lian JV 114,450 2017 169,924 Marina One Marina Way/Straits View MS Commercial 140,000 Royal Square At Novena Irrawaddy Road Hoi Hup Sunway Novena Pte Ltd 29,924 2018 1,457,278 Oxley Tower Robinson Road Oxley Consortium Pte Ltd 32,615 Changi Jewel Airport Boulevard Changi Airport Group 1,009,663 Northpoint City Yishun Frasers Centrepoint Limited 415,000 Source: CBRE, Savills, URA, Straits Times, DBS Bank estimates
Industry Focus
Singapore Property
Page 38
REIT-owned shopping malls within 100m of an MRT/LRT station or bus interchange
Source: URA, SMRT, DBS Bank
Yew Tee Point
Lot One
WestgateJCube
Clementi MallWisma Atria
Causeway Point
Changi City Point
Tampines Mall
Junction 8
Northpoint
Bugis Junction,Bugis+
Plaza Singapura,Atrium@Orchard
Clarke Quay
Bukit Panjang Plaza
Raffles City
Suntec City
VivoCity
CapitaMall Trust
Frasers Centrepoint Trust
Starhill Global REIT
Mapletree Commercial Trust
SPH REIT
Suntec REIT
Industry Focus
Singapore Property
Page 39
8. Office – Displacement demand to drive sustained uplift in rents for 2015
Key Assertions
Office rents outperformed the market in 2014 on the back of limited supply
Displacement demand from Equity Plaza and 2HR should bolster rents in 2015
Office REITs could enjoy stronger-than-expected reversions in 2015 as new supply only anticipated to complete in 2H16
A.Office rents continue to grow despite lower
absorption demand in 2014
Strong growth in office rents, led by CBD offices. Office rents have risen strongly in 2014, led by the Central Area (9.4%), followed by the Rest of Central Area (+8.6%) and City Fringe (+6.7%), according to URA. Supplementing these figures with more granular analysis by industry consultant Colliers, we find that Raffles Place/New Downtown rents have surged 18% y-o-y, followed by Grade A Raffles Place/New Downtown at 12% and Grade B City Fringe/Suburban offices (+11%). Across the sub-segments, office rents have hit their highest levels since 2011. URA office rental index
Source: URA, CEIC, DBS Bank Rent growth by subsegment y-o-y 3Q14
Office rents by subsector
Source: Colliers: DBS Bank Occupancy rates at their peak. According to URA, Downtown Core occupancy is the highest at 91.9%, followed by Rest of Central Area (91.8%), and Central Area (91.5%). City Fringe occupancy rates have also improved to 91% from 86% in 4Q13, marking three consecutive quarters of improved demand. Numbers provided by Colliers indicate even tighter vacancies for Grade A offices – Tanjong Pagar/Shenton Way occupancy rates have hit maximum capacity of 99.4%, followed by Marina/City Hall at 98.3%, City Fringe at 97.8% and Grade A Raffles Place/New Downtown at 97.2%. Meanwhile, Premium Raffles Place/New Downtown rents have improved to 94.1%, a marked improvement from 87% just a year ago. Occupancy rates: 3Q13 vs 3Q14
Source: Colliers, DBS Bank
0
50
100
150
200
250
Mar
-04
Aug-
04Ja
n-05
Jun-
05No
v-05
A pr-
06Se
p-06
Feb-
07Ju
l-07
Dec-
07M
a y-0
8O
ct-0
8M
ar-0
9Au
g-09
Jan-
10Ju
n-10
Nov-
10Ap
r-11
Sep-
11Fe
b-12
Jul-1
2De
c-12
Ma y
-13
Oct
-13
Mar
-14
Aug-
14
4Q98=100
Office: Central Region Office: Fringe Area Office: Central Area
2.00
4.00
6.00
8.00
10.00
12.00
P Raffles Place/ New Downtown A Raffles Place/ New DowntonA Shenton Way/ Tanjong Pagar A Marina/ City HallA Beach Road A Orchard RoadA City Fringe B Suburban
80%
82%
84%
86%
88%
90%
92%
94%
96%
98%
100%
Raffles Place/ New Downtown
Raffles Place/ New Downton
Shenton Way/
Tanjong Pagar
Marina/ City Hall
Beach Road Orchard Road
City Fringe Suburban
Occupancy rate 3Q13 3Q14
18%
12%
9%
9%
8%
3%
5%
11%
5%
10%
11%
2%
9%
11%
Raffles Place/ New Downtown
Raffles Place/ New Downton
Shenton Way/ Tanjong Pagar
Marina/ City Hall
Beach Road
Orchard Road
City Fringe
Suburban
Raffles Place/ New Downton
Shenton Way/ Tanjong Pagar
Beach Road
Orchard Road
City Fringe
Suburban
PA
AA
AA
AB
BB
BB
BB
0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%
Source: CEIC, Colliers, DBS Bank
Industry Focus
Singapore Property
Page 40
Different drivers in 2014 vs 2011. Despite similar rental levels today as in 2011, we observe several key differences between the two: (a) net absorption rates of c.1m sqft for 2014 is much lower than 2011’s c.2.3m sqft absorption rate; (b) demand today is driven by insurance, commodities and IT companies, that tend to take smaller spaces, compared to financial institutions, which drove demand for large spaces in 2011; and (c) 2014 will witness net supply of c.1m sqft vs 2m sqft in 2011, lower than the historical 5-year average of c.1.5m sqft. Economic uncertainty likely to continue dampening absorption rates. It would appear, then, that tepid demand has been mitigated by historically low supply. We have maintained the view that given declining net absorption rates over the past three years, current supply-driven rent increases are not sustainable in the longer term, unless there is a significant uptick in Singapore’s economy. Our DBS economist has lowered Singapore’s GDP growth forecasts to 3.2% from 3.6% previously, on the back of the uncertain global economy and volatile international monetary policies. In that light, we expect net absorption to remain low at <1m sqft for 2015. Historical net supply and absorption rate
Source: URA, CEIC, DBS Bank estimates B. Rents to rise 5-10% in 2015, softening expected only in
2H16
Expect 10-15% rise in office rents through 2015. Despite the moderation in net absorption rates, we expect office rents to continue their upward trajectory in 2015, led by Grade A Downtown Core (+10-15%), followed by Grade A City Fringe (+5-10%) and Grade A Raffles Place (+5-10%). Based on pre-commitment rates for offices opening at end-2014 (CapitaGreen 40%, South Beach 33%, Westgate Tower 60%), there remains c.1m sqft of new office space available for lease, of which 800k sqft is located in the Core CBD and City Fringe, and the remaining 200k sqft located in suburban areas. The
only office slated for completion in 2015 is outside the Central Area: Paya Lebar Square, a 430k-sqft strata-titled mixed development, which will TOP in 1Q15. Supply crunch set to worsen with offices removed from the market. The supply crunch in the Central Area/Downtown Core will be exacerbated by vacations in Equity Plaza (250k sqft) by March 2015 and 2HR (170k sqft) in 2016, which will remove c.420k sqft of office space from the market. With the fate of Prudential Tower still uncertain (some GFA is expected to be strata sold by its new owners), the shortage of leasable office space in the CBD could worsen in the near term. New completions in 2016 may not come early enough. Although we expect c.1.9m sqft of office NLA to be completed in 2016, current project timelines place the majority of completions in 3Q/4Q16, which may be too late for companies whose leases expire in 2016 to move into, given that an additional three to six months is required for fitting out. We reckon that these companies could opt for short-term extensions of their leases of roughly 12 to 18 months, depending on the bargaining power of the landlord. In this instance, we could see office rents continue their upward trajectory until 2016 rather than 2H15 which is expected by most market observers, as landlords seek to capitalise on traditionally higher short-term rents. We anticipate that these displaced tenants will likely move in either one of two directions: renting Grade A offices, or moving out of the CBD into city fringe offices or business parks. Our expectations are predicated on two observations: (a) Grade A shadow space is increasing, and (b) we are seeing evidence of companies that qualify for business parks, moving into city fringe business parks in order to defray costs. Shadow space in Grade A buildings as financial institutions temper their expansion expectations. Industry sources indicate that Grade A office space, particularly in the Downtown Core, has been increasing as financial institutions choose to pare down their expansion plans on the back of global economic uncertainties and Singapore’s low unemployment rate. As a result, they have either given back space, or chosen to sublet excess office capacity. We note that, according to CBRE, although Grade A office vacancies currently stand at 4.3%, the submarket is running at a higher vacancy rate of 5.6%. As companies transition to more efficient “open office” concepts, Grade A offices could prove to be an attractive alternative to Grade B Core CBD offices, given their more modern specifications.
-2,000
-1,000
0
1,000
2,000
3,000
4,000 '000 sqft
Net Supply: Private Sector Net absorption: Private Sector
Industry Focus
Singapore Property
Page 41
Office Supply (2014-2017)
Development Location Developer NLA Location TOP Pre-commitment
2014 310,000
Westgate Tower Jurong Capitaland/CMT 310,000 Outside Central 4Q14 60%
2015 1,650,000
CapitaGreen Raffles Place Capitaland/CCT 710,000 Downtown Core 4Q14 50%
Paya Lebar Square Paya Lebar Siong Feng/ Sun Venture/ Guthrie 430,000 Outside Central 1Q15 Strata
South Beach City Hall City Dev 510,000 Downtown Core 4Q14 33%
Equity Plaza (demolition) Raffles Place Various (250,000) Downtown Core 1Q15 -
2016 1,700,000
EON Shenton Shenton Way NA 100,000 Downtown Core NA Strata
V on Shenton Shenton Way UIC 260,000 Downtown Core NA N/A
Duo Bugis M+S 550,000 City Fringe 3Q16 N/A
Guoco Tower Tanjong Pagar Guocoland 820,000 Downtown Core 3Q16 N/A
Robinson Tower Robinson Road NA 140,000 Downtown Core 4Q16 N/A
2HR Raffles Place Guthrie (170,000) Downtown Core 1Q15 -
2017 2,895,355
Robinson Square Robinson Road NA 35,355 Downtown Core NA Strata
Marina One Marina Bay M+S 1,880,000 Downtown Core 1Q17 N/A
SBF Center Shenton Way Far East 230,000 Downtown Core NA Strata
Oxley Tower Shenton Way Oxley Consortium 110,000 City Fringe NA Strata
Site at Cecil Street Shenton Way FCL 640,000 Downtown Core NA N/A
Total Supply in Central 5,990,000
Total Office Supply (2014-2017) 6,730,000
Source: CBRE, Corporate Locations, JLL, Savills, URA, DBS Bank estimates
Industry Focus
Singapore Property
Page 42
C. Recent leases indicate strategic shift in tenants'
preferences.
Changes in leasing strategies as tenants request for longer leases. The 4.7m sqft of new supply anticipated in 2016-17 has cast a pall over current rent negotiations. According to Colliers, tenants are increasingly requesting for 5+5, 6+6, or 12 year leases with rent reviews, instead of the typical 3+3 years, in order to defray higher occupancy costs and capital expenditure on fittings. We note that similar strategies are currently being employed by KREIT, which announced that it has completed early renewals of some 175k sqft of NLA, some up to three years in advance of lease expirations, in anticipation of new supply beyond the next 1.5 years. Moving to the fringes of the centre. Over the past year, we have noted instances of certain qualifying companies located in the CBD or central areas, choosing to move to business parks or city fringe offices. As the rent differential between city fringe offices/business parks and CBD offices has widened to as much as 60-65%, newer business parks in particular have become attractive alternative locations due to lower rents and modern facilities. For example, CSC Computer Services opted to relocate to UE Biz Hub Changi from Twenty Anson, while DSM Nutritional Products is moving into Mapletree Business City as 2HR vacates its tenants. The business park Aperia, owned by Ascendas REIT, is also seeing strong demand, with the likes of Roche Diagnostics, Audi, Cardinal Health and Asiaphos moving out of CBD/rest of central area to the city fringe. Median Rent: Central Area vs Fringe Area
Source: CEIC, URA, DBS Bank
Watershed year for suburban offices. The opening of JEM and Westgate office towers was the office sector’s first step in the direction of the URA Master Plan’s vision for decentralised regional centres which allow residents to “live, work and play” outside the city centre. Initial response to these off-central office spaces seems positive, as JEM is fully taken up by the Ministry of National Development (MND), the Agri-Food and Veterinary Authority of Singapore (AVA), and the Building and Construction Authority (BCA), and Westgate Tower has reached c.60% pre-commitment, according to media sources. Westgate Tower’s latest tenant is CPG Corporation (formerly the Singapore Public Works Department), which will take up 83k sqft of space, and vacate its current premises at Novena Square. Based on consultant reports, we estimate that this move will allow CPG Corporation to achieve c.30% savings in rent psf, ceteris paribus. Despite change in patterns, CBD rents should still outperform in 2015. Despite the nascent sprouting of suburban offices, we expect CBD office rents to hold steady as the area still remains the desired location for many companies, in particular those that are new to Singapore, seeking to attract high quality manpower. We reckon that outside central office supply should taper off after Paya Lebar Square completes in 2015, as the government waits to test the operability of the Jurong Lake District before launching further government land sales.
0.00
2.00
4.00
6.00
8.00
10.00
12.00
Mar
-90
Feb-
91Ja
n-92
Dec
-92
Nov
-93
Oct
-94
Sep-
95A
ug-9
6Ju
l-97
Jun-
98M
a y-9
9A
pr-0
0M
ar-0
1Fe
b-02
Jan-
03D
ec-0
3N
ov-0
4O
ct-0
5Se
p-06
Au g
-07
Jul-0
8Ju
n-09
May
-10
Apr
-11
Mar
-12
Feb-
13Ja
n-14
S $ psf pm
Median Rent psf: Office Central Area Median Rent psf: Office Fringe Area
Re nt differential of up to 60% for central area vs city f r inge offices
Industry Focus
Singapore Property
Page 43
Commercial and Industrial Clusters by 2015
Source: URA
Companies are beginning to move out from the central area for better value
Company Description Moving From Moving To Leased area
(sqft)
Comments
Roche Diagnostics Medical research Central Plaza Aperia 40,000 City Fringe Biz Park
OpenNet Telecommunication systems The Gateway Technopark@Chai Chee 24,000 Dntwn Core Biz Park
DSM Nutritional Products Diagnostic Product Design 2HR Mapletree Business City 17,000 Dntwn Core Biz Park
CSC Computer Services e-Business solutions Twenty Anson UE Biz Hub Changi 28,000 Dntwn Core Biz Park
Audi/Volkswagen Automobiles Great World City Aperia NA Centrl Area Biz Park
Cardinal Health Pharmaceutical/ medical Fuji Xerox Tower Aperia NA Dntwn Core Biz Park
Asiaphos Mineral resources Parkview Square Aperia NA Dntwn Core Biz Park
CPG Corporation Public Works Novena Square Westgate Tower 83,000 Fringe Suburban
Source: JTC, Corporate Locations, DBS Bank
Industry Focus
Singapore Property
Page 44
D.More caution on office REITs despite strong rental
momentum
Distributions to remain stable through 2016. Given that office rents are likely to keep rising in 2015, we foresee minimal downside risk to our distribution estimates for office REITs. For CapitaCommercial Trust (CCT), c.30% of NLA is up for renewal in 2015, and we understand that a majority of it stems from GIC’s lease in Capital Tower, which has a rental escalation cap of c.20-30%. Given that expiring rents of c.S$6 psf pm are significantly below market rents (of c.S$10 psf pm), we expect rents to hit the cap, thereby contributing to a 3% growth in revenue for CCT in 2015. Other significant lease expiries include 6 Battery Road and One George Street, where 6% and 4% of total office income are due for renewal in 2015 respectively. One potential upside for the stock would be significant uptick in leasing activity in CapitaGreen in early 2015, which should translate into a stronger-than-expected 2H15, given 3-6 months of rent-free period. For Fraser Commercial Trust (FCOT), earnings growth will come mainly from full year contribution post the expiry of the master lease at Alexandra Technopark (ATP). Given its prime location within Alexandra prescient which is just off CBD, we expect upside to rentals given an attractive spread to rising rents within the CBD. What to look out for: upside risk from shorter term lease extensions. Beyond 2015, a key catalyst for office REITs would be their ability to sign short-term lease extensions for leases that expire in 2015/2016. Should there be a trend towards 12-18 month extensions, we could see upside potential for the likes of CCT, which have 47% and 42% of NLA expiring in 2015/16 respectively. Among the office REITs, we like CapitaCommercial Trust (CCT) for its potential for significant near-term rental reversions, given that 47% of NLA is due for renewal in 2015/2016.. We expect 2015 DPU to grow c.3% y-o-y, as higher rents are mitigated by share dilution post redemption of the Convertible Bonds. Over the next two years, we expect DPU to grow at a 6% CAGR as CapitaGreen completes and begins contributing fully in 2016. We have assumed an average of 5% growth in rental income for FY16 – reversions in excess of our assumptions would represent upside to distributions and share price.
WALE of various office SREITs
Source: Various REITs, DBS Bank However, watch out for share price fluctuation before rental peaks and troughs. Supported by long-term leases and the outlook for the office physical market still positive, we believe that downside risk to distributions in 2015 for office REITs (CCT and FCOT) is minimal. However, we have also noted that historical trading patterns of office REITs tend to lead physical office spot rents by c.9-12 months. Using CCT as a proxy to compare share price movements in the office sector to spot rents, we have noted in previous office up/down cycles in 2007/2009 and 2014, CCT’s share price tends to peak c.12 months before URA median rent peaks, and recovers c.12 months before a trough in median rents. With expectations that office rents are likely to peak at end-2015/1H16, we would be more hesitant to recommend investors to accumulate the stock after 1H15. CCT share price performance vs. URA median rents
Source: CEIC, URA, CapitaCommercial Trust, DBS Bank
6.00
7.00
8.00
9.00
10.00
11.00
12.00
0
0.5
1
1.5
2
2.5
CCT share price URA median rent
12 months ?
30%
17%
12%
41%
17%
25%
21% 21%
18%
24%
18%
38%
27%
21%19%
33%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
2015 2016 2017 >2018
% of NLA
CCT KREIT Suntec OUECT
Industry Focus
Singapore Property
Page 45
9. Industrial – Business Park space to shine
Key Assertions
Rents to moderate 5% p.a. due to concentration of new industrial supply completions in 2014-2016
Business Park space to surprise on the upside, given lack of office space in the CBD
Picks A-REIT/MINT to outperform
Pace of supply completions over 2015-2016 to have an impact on industrial sector performance. The industrial market continues to face an increasingly competitive operating environment due to a heightened pace of new industrial space completions over 2015-2016. Based on latest URA statistics, a total of 6.0m sqm (60.3m sqft) of new industrial space is under construction/ planning and projected to complete over 4Q14-2017, of which 95% of it is expected to complete within the next two years. This represents an annual increase in supply of 2.4m sqm, more than double the average supply completions over the past five years. When completed, total industrial stock is expected to increase by 14%. Industry facing 14% expansion in industrial supply
Source: URA, DBS Bank In terms of the industrial sub-segment breakdown, while all industrial sectors are expected to see the completion of a fair amount of new supply, we note that the Business Parks sub-segment will see a c.37% increase in available space, while the other sub-sectors are seeing in excess of c.10-18% increase in total space. Given that the pace of supply completions is skewed towards 2014-2015, we expect shorter-term hikes in vacancy rates, which will result in downward pressure on rentals.
Industry facing 14% expansion in industrial supply
Total Supply at
3Q14 (‘m sqft)
% Chg y-o-y
New stock
(‘m sqm)
% Increase
Warehouse 8.3 10% 1.5 18%
Single User Factory 22.7 3% 2.3 10%
Multi-User 9.8 7% 1.6 17%
Business Park 1.6 4% 0.6 37%
Total Industrial 42.3 6.0 14%
Source: URA, DBS Bank Vacancy rates to increase to 9-10%. Taking into account assumed pre-commitment rates and projected new demand, faced with an increasing supply outlook, we believe that the industry will see vacancy rates head towards 10-11% over the next two years, as new supply progressively completes in the coming years. As the influx and pace of completions are skewed over FY15-16F, we believe that on average, spot rentals are likely to see downside to the tune of c.5% per annum over 2015-2016, with the exception of Business Park space, which we believe will be resilient with c.0-3% growth. We see signs of stability within the Business Park space and believe the outlook to be most resilient following a year where (i) landlords have actively invested in capex to spruce up and upgrade to attract new tenants; and (ii) qualified tenants re-looking at the Business Park space due to a lack of supply in the Central Business District. For the Warehouse segment, the large incoming supply (+19% expansion) is likely to be mitigated by the high pre-commitment levels. However, we note that a weakness is likely to arise from the consolidation of space by end-users where landlords might have to either refurbish or redevelopment their properties to remain relevant. Projected pre-commitments for industrial space
New stock
(‘m sqft)
Est Demand*
% Vacancy (3Q13)
Est Vacancy (2014F-2015F)
Warehouse 1.6 75% 10% 11% Single-User 2.3 95% 5% 6% Multi-User 1.6 65% 11% 14% Business Park 0.6 80% 16% 16-17% Total Industrial
6.1 70% 8% 9-10%
*Including space pre-committed, user-built and projected demand Source: URA, DBS Bank
-
500
1,000
1,500
2,000
2,500
3,000 Sqm
Demand Supply
5-year average 1.1m sqm
3-year average 2.4 m sqm
Industry Focus
Singapore Property
Page 46
In summary, we expect spot rentals to decline by 5% over 2014, across various industrial segments (apart from Business Park space where we forecast a c.3% increase). Our discussions on the demand/supply outlook for the various industrial subsectors are in the subsequent pages.
Rental projections
Sector FY13 S$ psf
FY14E S$ psf
FY15F S$ psf
FY16F S$ psf
Multi-User Factory 2.02 2.15 2.04 1.94 Business Parks 4.25 4.00 4.12 4.24 Logistics 1.91 2.05 1.95 1.85 % Chg % Chg % Chg % Chg Multi-User Factory 0% 7% -5% -5% Business Parks 2% -6% 3% 3% Logistics 4% 7% -5% -5%
* According to URA Source: URA, DBS Bank Negative rental reversions projected over FY15-16F. The expected declines in spot rents are expected to further narrow the spread between expiring rent levels (assuming a 3-year rental cycle). As such, for leases that are mainly on a 3-yearly rolling basis, we expect most S-REITs to report on average, negative rental reversions over 2015-2016. We believe that the Business Park space will buck this trend, where we expect positive rental reversions to the tune of c.3%-4% over the next two years.
Rental Reversions to turn negative
Source: URA, DBS Bank
Industrial REITs – conversion of single-tenanted properties to multi-tenanted properties to impact short-term earnings. While historically being shielded from having a portion of its leases tied to long leases through single-tenanted properties, Industrial S-REITs, in recent quarters, have seen the conversion of these properties into multi-tenanted properties. Due to underlying vacancies, we have seen slight earnings erosion in earnings but impact on distributions has remained limited at <1% for most industrial REITs that we cover. Looking ahead, we believe that this trend will likely to continue with expected further conversion, as alluded to by most industrial landlords but we do not expect that to have a major impact on earnings estimates. Stricter sub-letting policy to hit REITs over medium term. Jurong Town Corporation (JTC) revised subletting policy which (i) limits the maximum allowable sublet quantum to 30% of GFA from the current 50%, and (ii) must sublet at least 70% of the space to anchor subtenants. While most industrial S-REITs are affected by this new ruling, the impact is not likely to be felt in the immediate term as existing leases have until end-2017 to adjust to this revised ruling. Lower number of sites available from Government land sales (IGLS) from 2H14. The total quantum of industrial GFA available for tender from the IGLS has been cut significantly since 2H14 to c.0.1m sqm, which indicates that the government remains mindful of the significant supply that needs to be digested first over 2015-2016. This, in our view, is a medium-term positive for the sector.
Cuts in industrial land supply from 4Q14
Source: JTC, URA, DBS Bank
-20%
-10%
0%
10%
20%
30%
40%
50%
2009 2010 2011 2012 2013 2014F 2015F 2016F
Business Park Warehouse Factory
Negative reversion
‐
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0.40
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1H10 2H10 1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14 1H15
'm sqm
Reserve
Confirmed
Industry Focus
Singapore Property
Page 47
Warehouse subsector – Risk from shadow space
Resilient in the face of incoming supply. According to URA, as of 3Q14, there were 8.3m sqm (c. 89m sqft) of total warehouse space. Over the past four quarters, we have seen close to 0.7m sqm (8.0m sqft) of completions, representing an increase of c.10% y-o-y. Major completed developments include Cogent 1 Logistics Hub (0.15m sqm), Mapletree Benoi Logistics Hub (0.09m sqm) Nippon Express Global Logistics Hub (0.05m sqm), Schenker Singapore development at 35 Greenwich drive (0.05m sqm) and Singapore Wine Vault Building (0.07m sqm) by CWT Limited. While a majority of these newly completed space are user-built facilities or are already 100% pre-committed, we understand that due to consolidations, shadow space have emerged at some of the older warehouse space, resulting in vacancy rates hiking towards c.10% as of 3Q14. Demand/Supply for warehouse space
Source: URA, DBS Bank Significant supply outlook. Supply in the warehouse space over the coming two years remains significant at close to 1.5m sqm (16.0m sqft) of space completing over 4Q14F-2016F. We note that 71% or 10m sqft is currently under construction, with the remaining under planning stage. Based on the expected pace of completion, most of the new incoming supply will be completed in 2014. A large proportion of the new developments are located in the traditional logistics hub of the Jurong/Tuas region in the Western part of Singapore and in Tampines. Major ramped-up warehouses under construction include (i) Supply Chain City, a 0.13m-sqm integrated warehouse development by YCH Group, (ii) a 0.1m-sqm warehouse development by Poh Tiong Choon, (iii) Carros Centre which is a 0.1m-sqm development
for strata-sale, (iv) Big Box (0.09m sqm) by TT international , and (v) Singapore Post’s 0.5m-sqm warehouse to kick-start its e-commerce arm. Even landlords like MLT’s multi-user warehouse development in Toh Guan Road, while expected to complete only in 2016, is understood to be in active conversations with end users to take up the space. Selected major warehouse space under development
Warehouse Space development location Developer (m sqm) Under construction Supply Chain City YCH 0.13 Pandan Road devt Poh Tiong Choon Logistics 0.10 Carros Centre Kranji Devt Pte Ltd 0.11 Big Box TT I’ntl Limited 0.09 Singapore Post Logistics Hub
Singapore Post 0.05
DHL Innovation Center Cache Logistics 0.05
Source: URA, DBS Bank New developments to see strong take-ups, risk from shadow space. While new warehouse developments are expected to be mainly pre-committed or driven by end-user needs. While some of this new demand might be expansionary in nature, the uncertainty on potential consolidation of space which will result in the emergence of shadow space from existing warehouses will be a key overhang on the sector’s performance going forward. As a result, warehouses with older specifications are likely to see occupancy pressure. As such, we believe the warehouse sector is likely to see vacancy levels remaining at c.10-11% over the next few years. Spot rents, which have historically shown a strong correlation to vacancy rates (correlation of close to -0.94), is forecast to decline by up to 5% per annum. Warehouse: Rental vs Vacancy trends (2004-2016F)
Source: URA, DBS Bank
0%
2%
4%
6%
8%
10%
12%
‐
100
200
300
400
500
600
700
800
900
1,000 Sqm
Demand Supply Vacancy (%)
80%
82%
84%
86%
88%
90%
92%
94%
96%
-
0.50
1.00
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2.00
2.50
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
F20
15F
2016
F
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
S $ psf pm Warehouse
Rental (S$psf pm) LHS Occupancy
Industry Focus
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Page 48
Factory subsector – Supply risk remains Increased competition from supply. As of 3Q14, based on URA data, total factory space (measured as Multi-User & Single-User Factories) at 32.4m sqm (348m sqft) which is an increase of 4% y-o-y. We estimate close to c.71% of factory space is single-user factory space, where demand is typically driven by expansion needs of the end user, while the remaining 29% is built to cater to users with smaller space requirements. Single-user factory space is mainly driven by expansion needs by end users and should continue to enjoy occupancy rates of close to 95%. While certain developments might include potential space that is sub-leased out to smaller occupiers, we believe risks going forward are lesser, given JTC’s tighter sub-leasing requirements which limit the total quantum of space available for re-let. In the multi-user factory space, with an average 0.5m sqm of new space completing annually over 2014F-2016F, we project vacancy levels to inch up by 1-2bps to c.13, given the onslaught of new supply completions over 2015F-16F. Demand/Supply of Factory Space (Multi-User)
Source: URA, DBS Bank Based on URA statistics, we found that close to 0.3m sqm or15% of total space are public sector projects by JTC and HDB, which are purpose-built for selected industries like Biomedical, Aerospace, FMCG and Automotive. These developments are mainly aimed at either new multi-national companies or supporting small-medium enterprises. The remaining private sector developments are mainly in the Central region (Kallang) and North region (Woodlands and Yishun) and strata-built developments.
Selected new public sector projects
Factories
Space
(m sqm)
Agency Region
JTC Aerospace (phase 2) @
Seletar Aerospace Park
0.09 JTC East
JTC Aviation Two @ Seletar
Aerospace Park
0.01 JTC East
JTC BioMed One @ Tuas
Biomedical Park
0.01 JTC West
JTC Food Hub @ Senoko 0.03 JTC West
JTC LaunchPad @ One-North 0.02 JTC Central
Kaki Bukit Autohub 0.01 HDB East
Sin Ming Autocity 0.05 HDB Central
Source: URA, DBS Bank Selected private sector projects
Factories
Total
Space
(m sqm)
Region
Eco-Tech @ Sunview 0.07 West
Link @ AMK 0.06 Central
Mandai Connection 0.05 Central
Built-to-suit for HP 0.04 Central
Source: URA, DBS Bank Overall rentals should weaken with new supply. We expect rentals in the multi-user factory space to weaken by c.5% per annum over 2014-2015. This is due to increased competition among the multi-user factory space from new supply, which will place a cap on existing rentals, as landlords price their properties attractively to retain tenants. Multi-user factory: Rental & Occupancy trends
(2005 – 2016F)
Source: URA, DBS Bank
0%
2%
4%
6%
8%
10%
12%
14%
16%
‐
100
200
300
400
500
600
700 Sqm
Demand Supply Vacancy (%)
76%
78%
80%
82%
84%
86%
88%
90%
92%
-
0.50
1.00
1.50
2.00
2.50
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
F20
15F
2016
F
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
S $ psf pmFactory
Rental (S$ psf pm) LHS Occupancy
Industry Focus
Singapore Property
Page 49
Business Park subsector – Strong pre-commitments to limit downside Attractive spreads vs CBD. Often seen as “quasi-office” space, Business Parks offer cheaper alternative office space for qualified users which do not need to be located in the CBD. As of 3Q13, total Business Park space stood at 1.6m sqm (17.2m sqft or 4% of total industrial stock). Due to high vacancy levels of c.18% over 2012-2013, rents of Business Park space have remained fairly stagnant while office rents in the CBD have risen by c.15% over the past year. Based on our estimates, median rents are c.65% below CBD rents, which is close to 2009-2010 levels and we believe this to be an attractive enough level for potential qualifying tenants to consider. Business Park rents at c.65% below CBD rents
Source: URA, DBS Bank We have seen instances of firms that qualify to be located in business parks, relocating from the CBD and expanding into newly completed/refurbished business parks in One North and Changi Business Park in recent quarters. This is a positive sign, in our view, as we believe this is an early indication of a possible turnaround in outlook, especially given the supply crunch in CBD in the coming year (please see summary of major tenant relocation under office section of the report). 33% expansion in supply; 66% pre-committed levels limit downside. Close to 0.6m sqm (61m sqft) of new Business Park space is expected to be completed in the coming two years, representing a 37% increase in supply. However, we note that pre-commitment levels is high at c.66%, where a majority of new projects under construction are at emerging hubs such as One North/Science Park which cater to specific industries in the life sciences and R&D industries and are built-to-suit single-user facilities. The only speculatively built project is Mapletree
Business City Phase 2 (0.12m sqm) at Alexandra precinct, which will complete in 2016. Upcoming supply largely located in Central part of
Singapore at One North (Buona Vista)
Source: URA, DBS Bank Incoming supply & estimated pre-commitment levels
Location Location GFA Pre-commitment m sqm
2015
Science Park Ascendas Land (S’pore)
0.04 100%
Ayer Rajah (One North)
Seagate Singapore 0.04 100%
DBS Asia One Hub 2 A-REIT 0.01 100%
Mediapolis MediaCorp 0.08 100%
Fusionopolis (one-north)
JTC Corp 0.09 95%
Changi Business Park Rigel Tech 0.03 90%
2016
Alexandra Terrace Mapletree Business City Pte Ltd
0.12 0%
Ayer Rajah (One North)
SHIN Systems assets 0.02 100%
Science Park Ascendas Land (S’pore)
0.05 0%
Source: DBS Bank, URA , A-REIT Business Park spot rents to increase by 3% in 2015. While new supply is supported by relatively high pre-commitment levels, we believe that landlords with older properties will still face pressure, given that high sector-wide vacancy is close to 16%. However, with the sector seeing improvement in demand in recent times, coupled with a lack of alternatives in the office space, we believe Business Park rentals might surprise on the upside in 2015. We project rentals to turn up by c.3% p.a. over 2015-2016.
0%
5%
10%
15%
20%
25%
30%
(50)
-
50
100
150
200
250
300
350 Sqm
Demand Supply Vacancy (%)
2.50
2.70
2.90
3.10
3.30
3.50
3.70
3.90
4.10
4.30
50%
52%
54%
56%
58%
60%
62%
64%
66%
S$ psf/mth(%)
Business Park Rents Spread vs CBD Office
Industry Focus
Singapore Property
Page 50
10. Hospitality – Renewed hope Key Assertions
Recovery in Chinese tourist numbers and overall tourist arrivals to catalyze performance in 2015
RevPAR to turn positive despite supply completions, projecting a 3.6% growth in 2015
CDL HT our top pick
Weak tourist arrivals in 2014
2014 is on track to be a disappointing year with overall tourist arrivals down 3.3% y-o-y for 10M14 to 12.6m visitors. Thus, the likelihood of arrivals meeting the Singapore Tourism Board’s (STB) target of 5-8% y-o-y growth to 16.3-16.8m visitors seems remote. The main cause for the weaker performance has been the decline in Chinese tourist arrivals (-27.8% y-o-y for 10M14). Chinese visitors who typically visit Singapore on Southeast Asian tours have avoided the region due to the political situation in Thailand and negative reaction to the MH370 incident. Chinese visitor arrivals have also been impacted by the imposition of new tourism laws in China which prohibits coercive shopping measures, low price and low quality tours. Prior to the new laws introduced in October 2013, customers in China were enticed by low price over even “zero fare” tours.
Tourist arrivals for 10M14 have also been impacted by declines in four out of the top five markets, with Singapore, and the other three being Indonesia (-1.6%: impact of Indonesian elections), Malaysia (-2.6%: drag from currency) and Australia (-3.9%: impact from weaker currency). This was partially offset by improvement from India (+1.7% y-o-y). Visitor source markets for 10M14
Source: STB, DBS Bank
Performance of top 5 markets
Year Indonesia China Malaysia India Australia Total
2010 32.1% 25.0% 35.7% 14.2% 6.0% 20.2% 2011 12.5% 34.7% 10.0% 4.8% 8.6% 13.2% 2012 9.5% 28.9% 8.0% 3.0% 9.9% 10.1% 2013 8.9% 11.6% 4.0% 4.3% 7.1% 7.4% 10M14 -1.6% -27.8% -2.6% 1.7% -3.9% -3.3%
Source: STB, DBS Bank Partially offset by an increase in the length of stay
While tourist arrivals have been weak, this has been partially offset by an increase in length of stay which increased to 3.73 days in 1H14 from 3.44 days in 1H13. This has been underpinned by a jump in length of stay by Chinese visitors to 4.15 days from 2.68 days in 1H13. We suspect this is a function of (i) increased quality of visitors coming to Singapore; and (ii) reduction in tour groups which typically stay for one to three days. Based on the 2Q14 STB Quarterly Tourism Focus report, the longer time spent in Singapore resulted in 1H14 visitor days and gross lettings rising 5.2% and 7.5% y-o-y to 28m days
and 6m room nights. This compares to a 2.8% y-o-y decline in 1H14 visitor arrivals to 7.5m tourists. Growth in visitor days, gross lettings and tourist arrivals
Indonesia20%
China12%
Ma laysia8%
India6%
Australia7%
Philippines5%
Thailand3%
HK 3%
Vietnam3%
Japan5%
Others13%
Europe11%
US3%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2007 2008 2009 2010 2011 2012 2013 1H14
Visitor arrivals Visitor days Gross lettings
y-o-y growth Divergence between Visitor daysand Gross lettings and visitor arrivalsdue to increase in legnth of days from 2.68dyas to 4.15 days
Source: STB, DBS Bank
Industry Focus
Singapore Property
Page 51
Delay in hotel supply insufficient to prevent RevPAR
decline
Despite the improvement in gross lettings, and delay in new hotel supply this year, 1,597 new rooms to be added in 2014 versus projections of 2,926 new rooms earlier this year, the performance of the hospitality YTD has been weak. Postponement of new hotels into 2015/2016
Hotel Rooms New opening
date
Previous target opening
Hotel Grand Chancellor Orchard
488 2015 3Q14
Hotel Grand Central 264 2015 3Q14
The Patina Capitol Singapore
157 2015 4Q14
Aqueen Hotel Little India
70 2016 4Q14
Source: CDREIT, DBS Bank With a downturn in the Chinese arrivals largely affecting the lower-end “tour groups”, this has resulted in 10M14 occupancy levels for Mid-Tier and Economy segments registering 180-bps and 36-bps drops to 85.1% and 81% respectively. Meanwhile, the luxury segment which has been strong early this year (+70bps improvement in 1H14), has suffered a dip of 80bps for 10M14. We believe this is on the back of the opening of several upscale/luxury hotels in 3Q14, such as Hotel Jen and One Farrer Hotel. Drag on occupancy from Mid-scale and Economy
Average Luxury Upscale Mid-Tier Economy 2008 81.0% 76.2% 80.8% 83.3% 81.1%
2009 75.8% 72.3% 76.9% 78.7% 69.8%
2010 85.2% 78.2% 85.9% 87.3% 85.6%
2011 86.4% 80.3% 87.3% 87.2% 85.5%
2012 86.5% 81.5% 87.8% 86.7% 84.9%
10M13 86.7% 88.5% 86.3% 86.8% 84.6%
10M14 85.9% 87.9% 87.7% 85.1% 81.0%
bps change
-0.8% -0.6% 1.4% -1.8% -3.6%
Source: STB, DBS Bank Given the backdrop of weaker occupancy, average industry daily rates (ADR) were flattish in 10M14 with the main weakness seen in the Upscale and Mid-Tier segments. The improvement in ADR for the Economy segment, we suspect is due to the lack of lower-priced tour groups.
Upscale and Mid Tier continues to be weak (S$)
Average Luxury Upscale Mid-Tier Economy 2008 245.9 408.1 268.7 192.5 113.1
2009 189.6 315.9 210.3 142.0 88.4
2010 217.9 357.0 243.5 168.1 100.6
2011 247.1 399.1 279.3 188.5 110.3
2012 261.3 431.4 301.4 197.1 110.7
10M13 257.4 432.0 268.7 190.7 100.8
10M14 257.9 462.2 266.4 186.0 109.0
y-o-y change
0.2% 7.0% -0.9% -2.4% 8.2%
Source: STB, DBS Bank With a decline in overall occupancy and flattish ADR’s, 10M14 RevPAR was down 0.8% y-o-y to S$221. Decline in 10M14 RevPAR
Average Luxury Upscale Mid-Tier Economy 2008 199.2 311.1 217.2 160.4 91.7
2009 143.7 228.5 161.7 111.7 61.7
2010 185.6 279.3 209.1 146.8 86.1
2011 213.5 320.4 243.9 164.4 94.3
2012 226.0 351.8 264.7 170.8 94.0
10M13 223 382 232 166 85
10M14 221 406 234 158 88
y-o-y change
-0.8% 6.3% 0.7% -4.4% 3.6%
Source: STB, DBS Bank No significant improvement in last two months of 2014
With a weak read-through from the latest October 2014 STB statistics, we do not expect any significant improvement in tourist arrivals or industry RevPAR. Thus, we expect 2014 to register a 1% y-o-y decline in RevPAR to S$220 on the back of overall occupancy of 86% and ADR of S$255.50.
Industry Focus
Singapore Property
Page 52
Expect decline in 2014 RevPAR
Year Occupancy Bps change Average room
rate (S$) y-o-y growth RevPar (S$) y-o-y growth
2008 81.0% -6.0% 245.9 21.9% 199.2 13.5%
2009 75.8% -5.2% 189.6 -22.9% 143.7 -27.8%
2010 85.2% 9.4% 217.9 14.9% 185.6 29.1%
2011 86.4% 1.2% 247.1 13.4% 213.5 15.0%
2012 86.5% 0.1% 261.3 5.7% 226.0 5.9%
2013 86.3% -0.2% 258.1 -1.2% 222.8 -1.4%
2014F 86.1% -0.2% 255.5 -1.0% 220.1 -1.2%
Source: STB, DBS Bank Bounce in Chinese visitor numbers to driver growth in
2015
Going into 2015, our base case calls for a recovery in tourist arrivals largely on the back of a rebound in Chinese visitors. This is underpinned by (i) negative impact from MH370 incident receding, (ii) more stable situation in Thailand, and (iii) low base effect. These factors can already be seen in the latest Thai tourism arrival statistics, whereby there was a 67% y-o-y jump in China tourist numbers in October. Furthermore, we expect a rebound in Indonesian arrivals (the largest source market) as the Indonesia elections in 2014 will no longer be a drag in 2015. Chinese tourist arrivals into Thailand and Singapore
Source: Thai Immigration Bureau, Police Department, STB, DBS Bank We think a recovery in Chinese tourist figures in 2015 is realistic as the downturn in 2014 was not due to Chinese tourists not going overseas. In fact, we have seen strong growth in other key markets that Chinese tourists visit.
Chinese tourist arrivals in key Chinese outbound markets
Malaysia & USA – 8M14, other countries – 10M14
Source: STB, Tourism Malaysia, Thai Immigration Bureau,, Korea Tourism Organization, Macau Government Tourist Office, Hong Kong Tourism Board, Japan National Tourism Organization, US Office of Travel & Tourism Industries, Taiwan Tourism Bureau, DBS Bank Top markets for Chinese outbound tourists in 2013
Source: CEIC, DBS Bank
Hong Kong, 41.0%
Macau, 25.7%
South Korea, 4.3%
Thailand, 4.1%
Taiwan, 3.0%
USA, 2.0%Japan, 1.9%
Vietnam, 1.8%
Cambodia, 1.7%
Malaysia, 1.4%
Singapore, 1.3%
Other, 11.7%
-60%
-40%
-20%
0%
20%
40%
60%
80%
Thailand Singapore
y-o-y growth
Recovery in Chinese touristsinto Thailand, expect recoveryin Singapore over the next few months
-50% -25% 0% 25% 50% 75% 100%
Singapore
Thailand
Malaysia*
Hong Kong
Macau
South Korea
Taiwan
USA*
Japan
y-o-y growth
Industry Focus
Singapore Property
Page 53
Moving into 2015, besides a rebound in Chinese visitors, a recovery should be underpinned by: (i) A growing list of diverse attractions (see table below)
which have been opened or scheduled to open in the new year. This include new cultural attractions such as the Singapore National Gallery and facilities such as the Singapore Sports Hub which will enable Singapore to attract additional concerts and sporting events;
(ii) incremental additions to the annual sports calendar such as the Rugby Sevens, on top of the Formula 1 and WTA Women’s finals. In addition, Singapore will host the 28th SEA Games in June which is expected to attract c.7,000 athletes; and
(iii) A solid list of MICE events despite 2015 missing some of the major bi-annual conferences
New upcoming attractions
Opening date
Attraction Category
Jun-14 Singapore Sports Hub Sports Sep-14 Karting Track @ Singapore Turf Club Sports 2015 Sisters' Island Marine Park Nature 2020 Expansion of Singapore Zoo Nature 2020 Integration of Jurong Bird Park to
Mandai area Nature
Oct-14 Madame Tussauds Singapore Family & Entertainment
2015 KidZania Family & Entertainment
2015 Reopening of Battlestar Galactica at Universal Studios Singapore
Family & Entertainment
2019 Redevelopment of six precincts in Sentosa
Family & Entertainment
1Q15 National Gallery Singapore Arts & Culture 1Q15 Lee Kong Chian Natural History
Museum Arts & Culture
2015 Singapore Pinacothèquede Paris Arts & Culture
Source: Press reports, CDREIT, STB, DBS Bank Incremental additions to annual sporting calendar
Date Existing annual sporting events Type
Sep-15 Formula 1 Motorsport
Oct-15 WTA women's final Tennis
Date New sports events Type
2015 Singapore Sevens Rugby Rugby
Jun-15 SEA games Multiple sports
Sep-15 FINA World Junior Swimming Championships
Swimming
Dec-15 ASEAN Para Games Multiple sports
Source: Formula1.com, WTA, press reports, DBS Bank
Continued solid list of MICE events in 2015
Event Date
Association of Orthodontists (Singapore) Congress 1Q15
World Low Cost Airlines Asia Pacific 2015 1Q15
Clinical Applications of Stem Cells 1Q15
5th Annual OTC Pharma Asia Conference 1Q15
Global Security Asia 2015 (GSA 2015) 1Q15
F+L WEEK CONFERENCE & EXHIBITION 1Q15
International Furniture Fair Singapore 1Q15
Sweets and Bakes Asia 2015 1Q15
Coffee & Tea Industry Expo 2015 1Q15
Café Asia 2015 1Q15
Last Mile Fulfilment Asia 2015 1Q15
BioPharma Asia Convention 2015 1Q15
Tyrexpo Asia 2015 1Q15
Black Hat Asia 1Q15
RehabTech Asia 2015 1Q15
37th Asia Pacific Dental Congress 2Q15
MTA 2015 2Q15
INTERPOL World 2Q15
CBME South East Asia - Children, Baby, Maternity Expo 2Q15
Sea Asia 2015 2Q15
Cards & Payments Asia 2015 2Q15
Singapore Yacht Show 2Q15
IMDEX Asia 2015 2Q15
Advances in qPCR & dPCR 2Q15
Asia Mining Congress 2015 2Q15
Aquarama 2015 2Q15
Pet Asia 2015 2Q15
BroadcastAsia 2015 2Q15
CommunicAsia2015 2Q15
6th Redesigning Pedagogy International Conference 2Q15
2nd Annual Healthcare Facilities Asia 2Q15
9th Annual Health Insurance Asia 2Q15
Singapore International Jewelry Expo 2015 3Q15
International Bioprinting Congress 3Q15
Mostra Convegno Expocomfort (MCE) Asia 2015 3Q15
Build Eco Xpo (BEX) Asia 2015 3Q15
Fire & Disaster Asia 2015 4Q15
Safety & Security Asia 2015 4Q15
International Facility Management Expo 2015 4Q15
LED+Light Asia 2015 4Q15
GreenUrbanScape Asia 2015 4Q15
Source: yoursingapore.com, DBS Bank
Industry Focus
Singapore Property
Page 54
In addition, as Singapore is celebrating its 50th year anniversary, various events throughout the year should stimulate interest and raise awareness of Singapore as a holiday destination.
Furthermore, the attractiveness of Singapore for the two largest source markets of Indonesia and China should be aided by the strengthening of the IDR and CNY versus the SGD.
Some tail winds from currency – 31Dec13 to 10Dec14
South East Asia North Asia SGD MYR THB VND HKD TWD KRW JPY EUR USD
CNY vs 2.0% 4.0% -1.6% -0.7% -2.0% 2.6% 3.0% 11.0% 8.8% -1.9%
IDR vs 2.6% 4.7% -0.9% -0.1% -1.4% 3.3% 3.6% 11.7% 9.5% -1.3%
Source: Bloomberg Finance L.P., DBS Bank
Nevertheless, we believe the bounce in tourist arrivals in 2015 will be lower than that experienced in prior periods (e.g. 2004 and 2010) following a downturn in the prior year. Historical recovery in tourist arrivals following a down
year (y-o-y growth)
Year Total visitors
2001 -2.2% 2002 0.6% 2003 -19.0% 2004 35.9% 2005 7.4% 2008 -1.6% 2009 -4.3% 2010 20.2% 2011 13.2%
Source: STB, DBS Bank This is because of the increased competition from other markets. In particular, Japan is becoming more attractive. The JPY has depreciated by 11% and 12% versus the CNY and IDR respectively. Furthermore, Japan has waived visa requirements for Indonesian nationals from 1 Dec 2014, should they hold an ePassport and register before arriving in Japan. There has also been easing of entry requirements for Chinese citizens into Europe. The increased competitive landscape is partially mitigated by expectations of longer length of stay for Chinese tourists. In 1H14, the Chinese tourists on average spent average 4.15 days in Singapore versus 2.68 in 1H14 and 3.02 days in 2013. With more price-sensitive tour/group tourists potentially going to destinations such as Japan, we believe the length of stay will stay elevated though dip slightly to 4.05 days from 4.1 days, as Singapore continues to attract the higher “quality” or spending tourists.
Recovery in Chinese and Indonesian tourist arrivals
Visitor arrivals (m)
Year Indonesia y-o-y
growth China y-o-y
growth Total y-o-y
growth 2008 1.8 -10.0% 1.1 -3.2% 10.1 -1.6% 2009 1.7 -1.1% 0.9 -13.2% 9.7 -4.3% 2010 2.3 32.1% 1.2 25.0% 11.6 20.2% 2011 2.6 12.5% 1.6 34.7% 13.2 13.2% 2012 2.8 9.5% 2.0 28.9% 14.5 10.1% 2013 3.1 8.9% 2.3 11.6% 15.6 7.4% 2014F 3.1 1.0% 1.7 -25.0% 15.3 -2.0% 2015F 3.3 5.0% 1.9 12.5% 16.0 4.6% 2016F 3.4 5.0% 2.2 15.0% 16.8 5.3% 2017F 3.6 5.0% 2.4 10.0% 17.6 4.8%
Source: STB, DBS Bank Extended Chinese stay
Length of stay (days) Year Indonesia China Total 2008 3.56 4.46 3.96 2009 3.50 4.01 3.96 2010 3.35 3.72 3.86 2011 3.23 3.30 3.73 2012 2.97 2.96 3.54 2013 2.77 3.02 3.48 2014F 2.77 4.10 3.69 2015F 2.77 4.05 3.70 2016F 2.77 4.05 3.71 2017F 2.77 4.05 3.73
Source: STB, DBS Bank All in, we have penciled in a 5% p.a. increase in tourist arrivals from Indonesia over the next three years. For Chinese tourists, we expect a 12.5% y-o-y improvement in 2015, followed by an acceleration to 15% as the full effects from the downturn in 2014 wears off. This should translate into a 4.6%, 5.3% and 4.8% y-o-y increase in tourist arrivals in 2015, 2016 and 2017 respectively.
Industry Focus
Singapore Property
Page 55
Stronger rebound in visitor days
Visitor days (m)
Year Indonesia y-o-y
growth China y-o-y
growth Total y-o-y
growth 2008 6,279 -1.1% 4,812 10.0% 40.0 7.3% 2009 6,112 -2.7% 3,752 -22.0% 38.4 -4.1% 2010 7,722 26.4% 4,359 16.2% 44.9 17.1% 2011 8,365 8.3% 5,205 19.4% 49.1 9.3% 2012 8,441 0.9% 6,023 15.7% 51.4 4.6% 2013 8,543 1.2% 6,846 13.7% 54.2 5.6% 2014F 8,628 1.0% 6,980 1.9% 56.2 3.7% 2015F 9,060 5.0% 7,757 11.1% 59.0 4.9% 2016F 9,513 5.0% 8,920 15.0% 62.4 5.8% 2017F 9,988 5.0% 9,812 10.0% 65.7 5.3%
Source: STB, DBS Bank Increase in 2015 new hotel supply Due to the delay in the opening of several hotels in 2014, 2015 will experience a 5.7% increase in hotel rooms versus 2.9% uplift in 2014. This should temper an expected improvement demand in 2015. Upcoming hotel supply
Source: Horwath HTL, CDREIT, DBS Bank
A large proportion of the new supply (c.60%) in 2015 is largely concentrated in the upscale/luxury segment. Meanwhile, in the prime Orchard, there is significant increase in new hotel supply, equivalent to 9.1% of estimated 2014 supply. This is higher than the 5.7% growth for the overall market in 2015.
Breakdown of new supply based on segment
Year
Number of
rooms
Upscale /
Luxury
% of new
supply Mid-Tier
% of new
supply Economy
% of new
supply
2014 1597 653 41% 707 44% 237 15%
2015 3229 1948 60% 1212 38% 69 2%
2016 3498 1208 35% 1789 51% 501 14%
2017 2217 1031 47% 1186 53% 0 0%
Source: Horwath HTL, CDREIT, DBS Bank Significant growth in new hotel supply in Orchard Road precinct
(% of existing supply)
Year Orchard area Overall Singapore
market
2013 2.9% 6.7%
2014F 6.4% 2.9%
2015F 9.1% 5.7%
2016F 0.0% 5.8%
2017F 2.4% 3.5%
Source: CBRE, Horwath HTL, CDREIT, DBS Bank
List of new hotels
Hotel Rooms Rating Location Opening
Aqueen Hotel Jalan Besar 75 Economy Outside City Centre 1Q14
Holiday Inn Express Clarke Quay 442 Mid-Tier City Centre 2Q14
Sofitel So Singapore (Ogilvy) 134 Upscale/Luxury City Centre 2Q14
One Farrer Hotel 250 Upscale/Luxury Outside City Centre 3Q2014
Hotel Jen (Formerly Phoenix Hotel) 502 Upscale/Luxury City Centre 3Q2014
Villa Samadhi Singapore, A Colonial Mansion 20 Upscale/Luxury Outside City Centre 4Q2014
Parc Sovereign 265 Mid-Tier Outside City Centre 4Q2014
Aqueen Hotel Paya Lebar 162 Economy Outside City Centre 4Q2014
51,579 1,597
3,229
3,498
2,217
45,000
50,000
55,000
60,000
65,000
70,000
2013 2014F 2015F 2016F 2017F
Rooms
Hotel rooms Supply Expected net additions
Industry Focus
Singapore Property
Page 56
List of new hotels (cont’d)
Hotel Rooms Rating Location Opening
South Beach 654 Upscale/Luxury City Centre 2015
SOHO Oasia Hotel 314 Upscale/Luxury City Centre 2015
The Patina Capitol Singapore 157 Upscale/Luxury City Centre 2015
Hotel Grand Chancellor Orchard 488 Mid-Tier City Centre 2015
Midlink Hotel 400 Mid-Tier City Centre 2015
Hotel Grand Central 264 Mid-Tier City Centre 2015
Amoy (Phase 2) (Additional Rooms) 60 Mid-Tier City Centre 2015
Sofitel Sentosa Resort and Spa 30 Upscale/Luxury Sentosa 2015
Genting Singapore 550 Upscale/Luxury Outside City Centre 2015
Development beside Crowne Plaza Changi Airport 243 Upscale/Luxury Outside City Centre 2015
Aqueen Hotel Lavender (Additional Rooms) 69 Economy Outside City Centre 2015
Clermont Hotel (Tanjong Pagar) 202 Upscale/Luxury City Centre 2016
Gallery Hotel (After Refurbishment) 225 Upscale/Luxury City Centre 2016
URA Hotel Site (Reserve List) 745 Mid-Tier City Centre 2016
M Social 293 Mid-Tier City Centre 2016
URA Hotel Site (Reserve List) 35 Economy City Centre 2016
Park Hotel Alexandra 450 Upscale/Luxury Outside City Centre 2016
Laguna Dusit Thani 200 Upscale/Luxury Outside City Centre 2016
Hotel Indigo Singapore Katong 131 Upscale/Luxury Outside City Centre 2016
Park Hotel Farrer Park 300 Mid-Tier Outside City Centre 2016
Holiday Inn Express Singapore Katong 451 Mid-Tier Outside City Centre 2016
Ibis Styles 296 Economy Outside City Centre 2016
Aqueen Hotel Geylang 100 Economy Outside City Centre 2016
Aqueen Hotel Little India 70 Economy Outside City Centre 2016
DUO Project 352 Upscale/Luxury City Centre 2017
Novotel Singapore on Stevens 259 Upscale/Luxury City Centre 2017
Somerset Grand Cairnhill Singapore Redevelopment 220 Upscale/Luxury City Centre 2017
Beach Road Hotel Conversion 200 Upscale/Luxury City Centre 2017
Ibis Singapore on Stevens 528 Mid-Tier City Centre 2017
Outpost Hotel 292 Mid-Tier City Centre 2017
Courtyard Marriott at Novena 250 Mid Outside City Centre 2017
OASIA West Residences 116 Mid Outside City Centre 2017
Source: Horwath HTL, CDREIT, DBS Bank
Industry Focus
Singapore Property
Page 57
Modest 3.6% growth in 2015 RevPAR
Going into 2015, we forecast a 50-bps improvement in occupancy to 86.6%. This is driven by gross lettings growing at 4.9% y-o-y, as (i) the average length of stay expands to 3.7 days from 3.69 and (ii) total visitor arrivals jumps 4.6% to 16m visitors. In contrast, available room nights are estimated to grow at a slower 4.3%.
With a tighter demand supply dynamic, we project a 3% increase in average room rate (ARR) to S$263, which translates to 3.6% growth RevPAR to S$228.
2014-2017F Occupancy, ADR and RevPAR forecasts
Demand
Year Visitor arrivals (m) y-o-y growth Length of stay
(days) Visitor days (m) y-o-y growth Gross lettings
(m) y-o-y growth 2008 10.1 -1.6% 3.96 40.0 7.3% 8.5 -7.5% 2009 9.7 -4.3% 3.96 38.4 -4.1% 8.2 -3.0% 2010 11.6 20.2% 3.86 44.9 17.1% 9.6 16.9% 2011 13.2 13.2% 3.73 49.1 9.3% 10.7 11.5% 2012 14.5 10.1% 3.54 51.4 4.6% 10.8 0.9% 2013 15.6 7.4% 3.48 54.2 5.6% 11.3 4.9% 2014F 15.3 -2.0% 3.69 56.2 3.7% 12.0 6.3% 2015F 16.0 4.6% 3.70 59.0 4.9% 12.6 4.9% 2016F 16.8 5.3% 3.71 62.4 5.8% 13.4 5.8% 2017F 17.6 4.8% 3.73 65.7 5.3% 14.1 5.3%
Supply Hotel industry performance
Year
Total number of
rooms y-o-y
growth
Available Room
Nights (m) y-o-y
growth Occupancy Bps
change
Average room rate
(S$) y-o-y
growth RevPar
(S$) y-o-y
growth 2008 39,376 4.7% 10.4 -0.6% 81.0% -6.0% 245.9 21.9% 199.2 13.5% 2009 42,719 8.5% 10.8 3.7% 75.8% -5.2% 189.6 -22.9% 143.7 -27.8% 2010 47,312 10.8% 11.3 4.0% 85.2% 9.4% 217.9 14.9% 185.6 29.1% 2011 49,719 5.1% 12.4 9.9% 86.4% 1.2% 247.1 13.4% 213.5 15.0% 2012 51,579 3.7% 12.5 0.8% 86.5% 0.1% 261.3 5.7% 226.0 5.9% 2013 55,018 6.7% 13.1 5.1% 86.3% -0.2% 258.1 -1.2% 222.8 -1.4% 2014F 56,615 2.9% 14.0 6.5% 86.1% -0.2% 255.5 -1.0% 220.1 -1.2% 2015F 59,844 5.7% 14.6 4.3% 86.6% 0.5% 263.2 3.0% 228.0 3.6% 2016F 63,342 5.8% 15.4 5.8% 86.7% 0.0% 268.4 2.0% 232.6 2.1% 2017F 65,559 3.5% 16.1 4.6% 87.2% 0.5% 276.5 3.0% 241.1 3.6%
Source: STB, Horwath HTL, CDREIT, DBS Bank
Industry Focus
Singapore Property
Page 58
Shape of 2015 recovery subject to pace of Chinese visitor
rebound
The performance of the Singapore hospitality market in 2015 is extremely sensitive to whether Chinese tourists return and at what pace, as well as the average number of days they spend in Singapore. In our base case, as discussed earlier, we see a 12.5% uplift in tourists arrivals, lower than prior recovery periods due to increased competition from other markets. Under this scenario we see a 3.6% increase in RevPAR to S$228.
Under our bear case, if there is no recovery at all (i.e. zero growth) as Chinese tourists gravitate to other markets and spend 3.5 days (average over the last few years), we see a significant 7.4% drop in RevPAR. In contrast, in the event Chinese arrivals bounce 25% in line with past recoveries and the average length of stay remains at 4.15 days, in line with 1H14 performance, the Singapore hospitality market will experience a boom. Occupancy should rise 220bps to 88.2% which should translate into 10% and 12.6% rise in ARR and RevPAR.
Bear, Base and Bull case scenarios
China tourist arrival growth Overall tourist arrival growth China avg. length of stay (days) Year Bear case Base case Bull case Bear case Base case Bull case Bear case Base case Bull case 2015F 0.0% 12.5% 25.0% 1.7% 4.6% 6.8% 3.50 4.05 4.15 2016F 15.0% 15.0% 15.0% 5.5% 5.3% 6.0% 3.50 4.05 4.15 2017F 10.0% 10.0% 10.0% 5.1% 4.8% 5.4% 3.50 4.05 4.15
Occupancy ARR (S$) RevPAR (S$) Year Bear case Base case Bull case Bear case Base case Bull case Bear case Base case Bull case 2015F 84.0% 86.6% 88.2% 242.7 263.2 281.1 203.8 228.0 247.9 2016F 83.8% 86.7% 88.4% 242.7 268.4 289.5 203.4 232.6 255.8 2017F 84.2% 87.2% 89.0% 247.6 276.5 298.2 208.4 241.1 265.3
bps Change in Occupancy y-o-y growth in ARR y-o-y growth in RevPAR Year Bear case Base case Bull case Bear case Base case Bull case Bear case Base case Bull case 2015F -2.2% 0.5% 2.0% -5.0% 3.0% 10.0% -7.4% 3.6% 12.6% 2016F -0.2% 0.0% 0.2% 0.0% 2.0% 3.0% -0.2% 2.1% 3.2% 2017F 0.4% 0.5% 0.6% 2.0% 3.0% 3.0% 2.5% 3.6% 3.7%
Source: STB, Horwath HTL, CDREIT, DBS Bank
Industry Focus
Singapore Property
Page 59
11. Charts – S-REIT (Yield and Price to Book)
Ascendas Hospitality Trust Historical Yield Spread Ascendas Hospitality Trust Historical P/BV
Ascendas REIT Historical Yield Spread Ascendas REIT Historical P/BV
Ascendas India Trust Historical Yield Spread Ascendas India Trust Historical P/BV
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
2012 2013 2014
ASHT P/BV Mean +1 SD -1 SD
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
2012 2013 2014
ASHT Yield Spread ASHT Yield Mean-1 SD +1 SD
0.0
0.5
1.0
1.5
2.0
2.5
2007 2008 2009 2010 2011 2012 2013 2014
AIT P/BV Mean +1 SD -1 SD
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
2007 2008 2009 2010 2011 2012 2013 2014
AIT Yield Spread AIT Yield Mean Yield-1 SD +1 SD
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
AREIT Yield Spread AREIT Yield Mean Yield-1 SD +1 SD
0.0
0.5
1.0
1.5
2.0
2.5
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
AREIT P/BV Mean +1 SD -1 SD
Industry Focus
Singapore Property
Page 60
Ascott REIT Historical Yield Spread Ascott REIT Historical P/BV
CapitaMall Trust Historical Yield Spread CapitaMall Trust Historical P/BV
CapitaCommercial Trust Historical Yield Spread CapitaCommercial Trust Historical P/BV
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
CCT Yield Spread CCT Yield Mean Yield-1 SD +1 SD
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
CCT P/BV Mean +1 SD -1 SD
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2006 2007 2008 2009 2010 2011 2012 2013 2014
Ascott P/BV Mean +1 SD -1 SD
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2006 2007 2008 2009 2010 2011 2012 2013 2014
Ascott Yield Spread Ascott Yield Mean Yield-1 SD +1 SD
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
CMT Yield Spread CMT Yield Mean Yield-1 SD +1 SD
0.0
0.5
1.0
1.5
2.0
2.5
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014CMT P/BV Mean +1 SD -1 SD
Industry Focus
Singapore Property
Page 61
CapitaRetail China Trust Historical Yield Spread CapitaRetail China Trust Historical P/BV
CDL Hospitality Trust Historical Yield Spread CDL Hospitality Trust Historical P/BV
Cambridge REIT Historical Yield Spread Cambridge REIT Historical P/BV
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2007 2008 2009 2010 2011 2012 2013 2014
CDREIT P/BV Mean +1 SD -1 SD-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2007 2008 2009 2010 2011 2012 2013 2014
CDREIT Yield Spread CDREIT Yield Mean Yield-1 SD +1 SD
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
2006 2007 2008 2009 2010 2011 2012 2013 2014Cambridge Yield Spread Cambridge YieldMean Yield -1 SD+1 SD
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2006 2007 2008 2009 2010 2011 2012 2013 2014
Cambridge P/BV Mean +1 SD -1 SD
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2006 2007 2008 2009 2010 2011 2012 2013 2014
CRCT P/BV Mean +1 SD -1 SD
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
2006 2007 2008 2009 2010 2011 2012 2013 201
CRCT Yield Spread CRCT Yield Mean Yield-1 SD +1 SD
Industry Focus
Singapore Property
Page 62
Cache Historical Yield Spread Cache Historical P/BV
Croesus Retail Trust Historical Yield Spread Croesus Retail Trust Historical P/BV
Far East Hospitality Trust Historical Yield Spread Far East Hospitality Trust Historical P/BV
0.700.750.800.850.900.95
1.001.051.101.151.20
Jun-
2013
Jul-2
013
Aug
-201
3
Sep-
2013
Oct
-201
3
Nov
-201
3
Dec
-201
3
Jan-
2014
Feb-
2014
Mar
-201
4
Apr
-201
4
May
-201
4
Jun-
2014
Jul-2
014
Aug
-201
4
Sep-
2014
Oct
-201
4
Nov
-201
4
Dec
-201
4
Croesus P/BV Mean +1 SD -1 SD
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
2013 2014
Croesus Yield Spread Croesus YieldMean Yield -1 SD+1 SD
0.7
0.8
0.9
1.0
1.1
1.2
1.3
2012 2013 2014FEHT P/BV Mean +1 SD -1 SD
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
2012 2013 2014
FEHT Yield Spread FEHT Yield Mean
-1 SD +1 SD
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
2010 2011 2012 2013 2014
Cache Yield Spread Cache Yield Mean Yield-1 SD +1 SD
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
2010 2011 2012 2013 2014Cache P/BV Mean +1 SD -1 SD
Industry Focus
Singapore Property
Page 63
Frasers Commercial Trust Historical Yield Spread Frasers Commercial Trust Historical P/BV
Frasers Centrepoint Trust Historical Yield Spread Frasers Centrepoint Trust Historical P/BV
K-REIT Historical Yield Spread K-REIT Historical P/BV
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2006 2007 2008 2009 2010 2011 2012 2013 2014
KREIT P/BV Mean +1 SD -1 SD
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2006 2007 2008 2009 2010 2011 2012 2013 2014
KREIT Yield Spread KREIT Yield Mean Yield-1 SD +1 SD
0.0
0.2
0.4
0.6
0.8
1.0
1.2
2006 2007 2008 2009 2010 2011 2012 2013 2014
FCOT P/BV Mean +1 SD -1 SD
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
2006 2007 2008 2009 2010 2011 2012 2013 2014
FCOT Yield Spread FCOT Yield Mean-1 SD +1 SD
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2006 2007 2008 2009 2010 2011 2012 2013 2014
FCT P/BV Mean +1 SD -1 SD
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
2006 2007 2008 2009 2010 2011 2012 2013 2014FCT Yield Spread FCT Yield Mean Yield-1 SD +1 SD
Industry Focus
Singapore Property
Page 64
Mapletree Industrial Trust Historical Yield Spread Mapletree Industrial Trust Historical P/BV
Mapletree Logistic Trust Historical Yield Spread Mapletree Logistic Trust Historical P/BV
Mapletree Commercial Trust Historical Yield Spread Mapletree Commercial Trust Historical P/BV
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
2011 2012 2013 2014
MCT P/BV Mean +1 SD -1 SD
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
2011 2012 2013 2014MCT Yield Spread MCT Yield Mean Yield
-1 SD +1 SD
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
2011 2012 2013 2014MINT Yield Spread MCT Yield Mean Yield-1 SD +1 SD
0.9
1.0
1.1
1.2
1.3
1.4
1.5
2010 2011 2012 2013 2014MINT P/BV Mean +1 SD -1 SD
0.0
0.5
1.0
1.5
2.0
2.5
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
MLT P/BV Mean +1 SD -1 SD
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
MLT Yield Spread MLT Yield Mean Yield-1 SD +1 SD
Industry Focus
Singapore Property
Page 65
Mapletree Greater China Commercial Trust Historical Yield Spread
Mapletree Greater China Commercial Trust Historical
P/BV
OUE Hospitality Trust Historical Yield Spread OUE Hospitality TrustHistorical P/BV
Parkway Life REIT Historical Yield Spread Parkway Life REIT Historical P/BV
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
Mar
-13
Apr
-13
May
-13
Jun-
13
Jul-1
3
Aug
-13
Sep-
13
Oct
-13
Nov
-13
Dec
-13
Jan-
14
Feb-
14
Mar
-14
Apr
-14
May
-14
Jun-
14
Jul-1
4
Aug
-14
Sep-
14
Oct
-14
Nov
-14
Dec
-14
MAGIC Yield Spread MAGIC Yield Mean
-1 SD +1 SD
0.7
0.8
0.9
1.0
1.1
1.2
1.3
Mar
-201
3
Apr
-201
3
May
-201
3
Jun-
2013
Jul-2
013
Aug
-201
3
Sep-
2013
Oct
-201
3
Nov
-201
3
Dec
-201
3
Jan-
2014
Feb-
2014
Mar
-201
4
Apr
-201
4
May
-201
4
Jun-
2014
Jul-2
014
Aug
-201
4
Sep-
2014
Oct
-201
4
Nov
-201
4
Dec
-201
4
MAGIC P/BV Mean +1 SD -1 SD
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
2013 2014OUEHT Yield Spread OUEHT Yield Mean Yield-1 SD +1 SD
0.9
0.9
0.9
0.9
1.0
1.0
1.0
1.0
2013 2014OUEHT P/BV Mean +1 SD -1 SD
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2008 2009 2010 2011 2012 2013 2014
PREIT P/BV Mean +1 SD -1 SD
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
2008 2009 2010 2011 2012 2013 2014
PREIT Yield Spread PREIT Yield Mean-1 SD +1 SD
Industry Focus
Singapore Property
Page 66
Religare Health Trust Historical Yield Spread Religare Health Trust Historical P/BV
Soilbuild Business Space REIT Historical Yield Spread Soilbuild Business Space REIT Historical P/BV
SPH REIT Historical Yield Spread SPH REIT Historical P/BV
1.00
1.02
1.04
1.06
1.08
1.10
1.12
1.14
1.16
1.18
1.20
2013 2014
SPH REIT P/BV Mean +1 SD -1 SD
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
2013 2014SPH REIT Yield Spread SPH REIT YieldMean Yield -1 SD
0.80
0.85
0.90
0.95
1.00
1.05
SBREIT P/BV Mean +1 SD -1 SD
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
SBREIT Yield Spread SBREIT Yield Mean Yield-1 SD +1 SD
0.80
0.85
0.90
0.95
1.00
1.05
1.10
1.15
1.20
RHT P/BV Mean +1 SD -1 SD
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
RHT Yield Spread RHT Yield Mean Yield-1 SD +1 SD
Industry Focus
Singapore Property
Page 67
Starhill Global REIT Historical Yield Spread Starhill Global REIT Historical P/BV
Suntec REIT Historical Yield Spread Suntec REIT Historical P/BV
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
SGREIT Yield Spread SGREIT Yield Mean Yield-1 SD +1 SD
0.0
0.2
0.4
0.6
0.8
1.0
1.2
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
SGREIT P/BV Mean +1 SD -1 SD
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Suntec P/BV Mean +1 SD -1 SD
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Suntec Yield Spread Suntec Yield Mean
-1 SD +1 SD
Industry Focus
Singapore Property
Page 68
12. Charts – Developers (Price to Book and Price to RNAV )
CapitaLand P/RNAV CapitaLand P/Bk NAV
City Developments P/RNAV City Developments P/NAV
Wingtai P/RNAV Wingtai P/NAV
-80%
-60%
-40%
-20%
0%
20%
40%
60%
CAPL Disc to RNAV Mean -1 SD +1 SD
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
CIT Disc to RNAV Mean -1 SD +1 SD
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Wingtai Disc to RNAV Mean -1 SD +1 SD
0.0
0.5
1.0
1.5
2.0
2.5
CAPL P/Bk NAV Mean +1 SD -1 SD
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
WINGT P/Bk NAV Mean +1 SD -1 SD
0.0
0.5
1.0
1.5
2.0
2.5
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
CIT P/Bk NAV Mean +1 SD -1 SD
Industry Focus
Singapore Property
Page 69
UOL P/RNAV UOL P/NAV
Wheelock Properties P/RNAV Wheelock Properties P/NAV
GLP P/RNAV GLP P/NAV
-90%
-80%
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
UOL Disc to RNAV Mean -1 SD +1 SD
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Wheelock Disc to RNAV Mean -1 SD +1 SD
-45%
-40%
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
2010 2011 2012 2013 2014
GLP Disc to RNAV Mean -1 SD +1 SD
0.0
0.5
1.0
1.5
2.0
2.5
WP P/Bk NAV Mean +1 SD -1 SD
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
UOL P/Bk NAV Mean +1 SD -1 SD
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2010 2011 2012 2013 2014GLP P/Bk NAV Mean +1 SD -1 SD
Industry Focus
Singapore Property
Page 70
Property Developers P/RNAV Property Developers P/NAV
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Disc to RNAV Mean +1 SD -1 SD
0.0
0.5
1.0
1.5
2.0
2.5
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
P/Bk NAV Mean - 1 SD +1 SD
Industry Focus
Singapore Property
Page 71
Stock Profiles
Page 72
www.dbsvickers.com ed: JS / sa: JC
Bloomberg: AREIT SP | Reuters: AEMN.SI Refer to important disclosures at the end of this report
BUY S$2.37 STI : 3,281.95 Price Target : 12-Month S$ 2.49 Potential Catalyst: Acquisitions / asset redevelopment Analyst Derek TAN +65 6682 3716 [email protected] Rachael TAN +65 6682 3713 [email protected]
Price Relative
84
104
124
144
164
184
204
1.6
1.8
2.0
2.2
2.4
2.6
2.8
3.0
Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
Relative IndexS$
Ascendas REIT (LHS) Relative STI INDEX (RHS) Forecasts and Valuation FY Mar (S$ m) 2014A 2015F 2016F 2017F
Gross Revenue 614 668 694 699 Net Property Inc 436 470 486 491 Total Return 482 341 350 354 Distribution Inc 339 353 363 366 EPU (S cts) 14.6 14.2 14.6 14.7 EPU Gth (%) 24 (3) 3 1 DPU (S cts) 14.2 14.7 15.1 15.2 DPU Gth (%) 4 3 3 1 NAV per shr (S cts) 201.8 201.0 200.2 199.4 PE (X) 16.2 16.7 16.3 16.1 Distribution Yield (%) 6.0 6.2 6.4 6.4 P/NAV (x) 1.2 1.2 1.2 1.2 Aggregate Leverage (%) 29.6 33.9 34.1 34.3 ROAE (%) 7.4 7.0 7.3 7.3 Distn. Inc Chng (%): - - Consensus DPU (S cts): 15.4 15.7 Other Broker Recs: B: 12 S: 3 H: 11 ICB Industry : Real Estate ICB Sector: Real Estate Investment Trust Principal Business: AREIT's portfolio focussed on business space and industrial properties.
Source of all data: Company, DBS Bank, Bloomberg Finance L.P
At A Glance Issued Capital (m shrs) 2,406 Mkt. Cap (S$m/US$m) 5,702 / 4,276 Major Shareholders Ascendas Pte Ltd (%) 17.1 Blackrock (%) 6.0 Matthews International Capital (%) 5.1 Free Float (%) 71.8 Avg. Daily Vol.(‘000) 8,101
Industry Focus
Ascendas REIT
Key things to watch out for:
Aperia to drive growth; AEIs to add value
Acquisitions still highly selective, although Sponsor has >S$2bn of assets that could be injected
Improving take up at Changi Business Park, as spread between office and business park rents widen
Investment Thesis
A leader in Singapore’s industrial market. A-REIT is one of the largest industrial landlords in Singapore with a market share of around 38%. Given its size and market leadership, the REIT is typically a price-setter.
Diversified customer base. Derives its income from a diverse source of tenants which range from electronics, F&B, logistics to info-communications. Hence, A-REIT is not over-reliant on the performance of any industrial sub-sector. A-REIT’s leases have a fairly long average lease expiry profile of close to 3 years, meaning that only a portion of its income will be renewed every year, thus further reducing refinancing risk.
Strong sponsor support. Sponsor Ascendas Group, a master-planner and regional developer of industrial properties, provides a visible growth path through a right of first refusal to acquire its assets and is also a lender of last resort.
Risks
Interest rate risk Any increase in interest rates will result in higher interest payments, which will reduce income available for distribution and result in lower distribution per unit (DPU) to unitholders.
Economic risk
A deterioration in the economic outlook could have a negative impact on industrial rents and occupancies as companies cut back production and require less space; industrial rents have a strong correlation with GDP growth.
Valuation
Our DCF-based TP of S$2.49 is maintained. Stock offers attractive forward yields of 6.1%-6.3%. Maintain BUY.
Industry Focus
Ascendas REIT
Page 73
Income Statement (S$ m)
FY Mar 2013A 2014A 2015F 2016F 2017F
Gross revenue 576 614 668 694 699 Property expenses (167) (178) (197) (207) (208) Net Property Income 409 436 470 486 491 Other Operating (45) (41) (45) (47) (47) Other Non Opg (Exp)/Inc (1) 3 0 0 0 Net Interest (Exp)/Inc (99) (36) (84) (89) (89) Exceptional Gain/(Loss) 0 12 0 0 0 Net Income 264 374 341 351 354 Tax 0 (23) 0 0 0 Minority Interest 0 0 0 0 0 Preference Dividend 0 0 0 0 0 Net Income After Tax 264 351 341 350 354 Total Return 337 482 341 350 354 Non-tax deductible Items (31) (11) 12 12 12 Net Inc available for Dist. 306 339 353 363 366 Growth & Ratio Revenue Gth (%) 14.4 6.6 8.8 3.9 0.7 N Property Inc Gth (%) 11.0 6.6 7.9 3.5 0.9 Net Inc Gth (%) (1.7) 32.8 (2.9) 2.9 1.0 Dist. Payout Ratio (%) 100.0 100.0 100.0 100.0 100.0 Net Prop Inc Margins (%) 71.0 71.1 70.4 70.1 70.2 Net Income Margins (%) 45.9 57.2 51.0 50.5 50.7 Dist to revenue (%) 53.2 55.3 52.8 52.3 52.5
Managers & Trustee’s fees to sales %) 7.8 6.6 6.8 6.8 6.8
ROAE (%) 6.2 7.4 7.0 7.3 7.3 ROA (%) 3.9 4.9 4.5 4.5 4.5 ROCE (%) 5.5 5.3 5.7 5.7 5.8 Int. Cover (x) 3.7 11.0 5.1 5.0 5.0
Source: Company, DBS Bank
Net Property Income and Margins
66.6%
68.6%
70.6%
72.6%
74.6%
76.6%
0
50
100
150
200
250
300
350
400
450
500
2013A 2014A 2015F 2016F 2017F
S$ m
Net Property Income Net Property Income Margin %
Earnings driven by completion of Aperia, and acquisition of Hyflux Building
Industry Focus
Ascendas REIT
Page 74
Quarterly / Interim Income Statement (S$ m)
FY Mar 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015
Gross revenue 152 154 157 163 165 Property expenses (45) (46) (44) (47) (50) Net Property Income 107 109 112 116 115 Other Operating (10) (11) (10) (11) (11) Other Non Opg (Exp)/Inc (6) 0 (3) 3 14 Net Interest (Exp)/Inc (15) 8 (47) (23) (20) Exceptional Gain/(Loss) 0 0 5 2 (12) Net Income 75 106 193 87 86 Tax 0 0 (22) (1) (1) Minority Interest 0 0 0 0 0 Net Income after Tax 75 105 171 86 85 Total Return 75 105 171 86 113 Non-tax deductible Items 11 (20) (87) 2 (26) Net Inc available for Dist. 86 85 84 88 87 Growth & Ratio Revenue Gth (%) 1 2 1 4 1 N Property Inc Gth (%) (1) 1 3 4 (1) Net Inc Gth (%) (43) 40 62 (50) (1) Net Prop Inc Margin (%) 70.6 70.3 71.7 71.3 69.6 Dist. Payout Ratio (%) 100.0 100.0 100.0 100.0 100.0
Net Property Income and Margins
67%
68%
69%
70%
71%
72%
73%
90
95
100
105
110
115
120
1Q
20
13
2Q
20
13
3Q
20
13
4Q
20
13
1Q
20
14
2Q
20
14
3Q
20
14
4Q
20
14
1Q
20
15
2Q
20
15
Net Property Income Net Property Income Margin %
Source: Company, DBS Bank
DPU of 7.3Scts for 1H15 comprises 51% of our full year estimates
Industry Focus
Ascendas REIT
Page 75
Balance Sheet (S$ m)
FY Mar 2013A 2014A 2015F 2016F 2017F
Investment Properties 6,599 6,923 7,424 7,434 7,444 Other LT Assets 255 290 290 290 290 Cash & ST Invts 20 66 82 84 82 Inventory 0 0 0 0 0 Debtors 47 66 51 53 53 Other Current Assets 38 13 13 13 13 Total Assets 6,959 7,357 7,860 7,874 7,883 ST Debt 235 946 956 966 976 Creditor 135 127 154 160 161 Other Current Liab 71 33 31 31 31 LT Debt 1,744 1,231 1,711 1,721 1,731 Other LT Liabilities 113 171 171 171 171 Unit holders’ funds 4,661 4,849 4,836 4,824 4,812 Minority Interests 0 0 0 0 0 Total Funds & Liabilities 6,959 7,357 7,860 7,874 7,883 Non-Cash Wkg. Capital (121) (82) (122) (126) (127) Net Cash/(Debt) (1,960) (2,111) (2,585) (2,603) (2,625) Ratio Current Ratio (x) 0.2 0.1 0.1 0.1 0.1 Quick Ratio (x) 0.2 0.1 0.1 0.1 0.1 Aggregate Leverage (%) 28.4 29.6 33.9 34.1 34.3 Z-Score (X) 1.5 1.4 1.2 1.2 1.2 Cash Flow Statement (S$ m)
FY Mar 2013A 2014A 2015F 2016F 2017F
Pre-Tax Income 264 374 341 351 354 Dep. & Amort. 1 1 0 0 0 Tax Paid 0 (1) (2) 0 0 Associates &JV Inc/(Loss) 0 0 0 0 0 Chg in Wkg.Cap. (18) 4 41 4 1 Other Operating CF 128 29 0 0 0 Net Operating CF 375 407 380 354 355 Net Invt in Properties 0 0 0 0 0 Other Invts (net) (257) (95) (501) (10) (10) Invts in Assoc. & JV 0 0 0 0 0 Div from Assoc. & JVs 0 0 0 0 0 Other Investing CF 0 (40) 0 0 0 Net Investing CF (257) (135) (501) (10) (10) Distribution Paid (309) (326) (353) (363) (366) Chg in Gross Debt (419) 198 490 20 20 New units issued 705 0 0 0 0 Other Financing CF (95) (98) 0 0 0 Net Financing CF (119) (226) 137 (343) (346) Currency Adjustments 0 0 0 0 0 Chg in Cash 0 46 16 2 (2) Operating CFPS (S cts) 17.5 16.8 14.1 14.6 14.7 Free CFPS (S cts) 16.7 16.9 15.8 14.7 14.7
Source: Company, DBS Bank
Aggregate Leverage
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
2013A 2014A 2015F 2016F 2017F
Distribution Paid / Net Operating CF
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
2013A 2014A 2015F 2016F 2017F
Investment properties boosted by acquisition of Hyflux Building and Aperia
REIT to embark on a series of developments/AEIs worth S$129m, which will sequentially add to earnings in the coming quarters
Page 76
www.dbsvickers.com ed: TH / sa: JC
Bloomberg: CAPL SP | Reuters: CATL.SI Refer to important disclosures at the end of this report
BUY S$3.24 STI : 3,281.95 Price Target : 12-month S$ 3.84 Potential Catalyst: Asset recycling Analyst Derek TAN +65 6682 3716 [email protected]
Price Relative
63
83
103
123
143
163
183
203
2.0
2.5
3.0
3.5
4.0
Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
Relative IndexS$
CapitaLand (LHS) Relative STI INDEX (RHS) Forecasts and Valuation FY Dec (S$ m) 2013A 2014F 2015F 2016F
Turnover 3,977 3,158 3,148 3,307 EBITDA 1,444 1,649 1,613 1,530 Pre-tax Profit 1,354 1,292 1,269 1,051 Net Profit 850 764 874 715 Net Pft (Pre Ex.) 528 764 784 715 EPS (S cts) 20.0 17.9 20.5 16.8 EPS Pre Ex. (S cts) 12.4 17.9 18.4 16.8 EPS Gth (%) (9) (10) 14 (18) EPS Gth Pre Ex (%) (32) 45 3 (9) Diluted EPS (S cts) 27.0 24.3 27.8 22.7 Net DPS (S cts) 8.0 7.2 7.4 6.7 BV Per Share (S cts) 377.5 387.5 400.8 410.2 PE (X) 16.2 18.1 15.8 19.3 PE Pre Ex. (X) 26.1 18.1 17.6 19.3 P/Cash Flow (X) 26.4 nm nm nm EV/EBITDA (X) 16.3 16.6 17.9 20.0 Net Div Yield (%) 2.5 2.2 2.3 2.1 P/Book Value (X) 0.9 0.8 0.8 0.8 Net Debt/Equity (X) 0.3 0.5 0.6 0.6 ROAE (%) 5.5 4.7 5.2 4.1 Earnings Rev (%): - - - Consensus EPS (S cts): 16.6 17.8 21.1 Other Broker Recs: B: 22 S: 0 H: 4 ICB Industry : Real Estate ICB Sector: Real Estate Principal Business: Residential, commercial and industrial property owner and developer.
Source of all data: Company, DBS Bank, Bloomberg Finance L.P
At A Glance Issued Capital (m shrs) 4,259 Mkt. Cap (S$m/US$m) 13,798 / 10,349 Major Shareholders Temasek Holdings Pte Ltd (%) 39.5 Blackrock (%) 6.0 Free Float (%) 60.5 Avg. Daily Vol.(‘000) 8,861
Industry Focus
CapitaLand
Key things to watch out for:
Asset re-cycling of stabilised properties into REITs as re-rating catalysts
Loosening of HPR restrictions in China a positive for its China residential projects
Deployment of capital into new projects in its core focus markets of Singapore, China
Investment Thesis
Building up operating income base The group’s near-term focus would be on building up operating earnings in its core markets, particularly in Singapore and China. This would underpin its long-term ROE objective of 8-12%. Plans to launch new projects in Singapore as well as to continue to market residential projects in China provide forward earnings visibility, while a strong balance sheet with low gearing of 34% would position them well for future potential acquisitions. Ascott Group Growth is accelerating from an expected doubling its inventory to 80,000 units by 2020, underpinned by a new strategic relationship in Quest (20% stake, to invest A$500m in Quest's pipeline in Australia over five years). Capital recycling We see re-rating catalysts emerging from the potential capital recycling of mature assets in its portfolio (malls/service residences in Singapore/China) to its REITs.
Risks
Slowdown in Asian economies The risk to our view is a possible slowdown in Asian economies, which could result in slower demand for housing and private consumption expenditure and retail sales. This in turn could result in slower-than-expected projections. Valuation
We maintain our BUY recommendation on CapitaLand as its operations in Singapore and China residential continue to grow. With a streamlined organisational structure, the group is more nimble in executing on opportunities (gearing of 0.6x) and also to potentially recycle capital either through its REITs/funds which would be catalysts towards closing the RNAV gap. Maintain Buy with TP of S$3.84, pegged at a 30% discount to RNAV.
Industry Focus
CapitaLand
Page 77
Income Statement (S$ m)
FY Dec 2012A 2013A 2014F 2015F 2016F
Revenue 3,301 3,977 3,158 3,148 3,307 Cost of Goods Sold (2,073) (2,892) (1,188) (1,139) (1,220) Gross Profit 1,228 1,086 1,971 2,009 2,087 Other Opng (Exp)/Inc (295) (743) (814) (893) (980) Operating Profit 933 343 1,156 1,116 1,107 Other Non Opg (Exp)/Inc 1 3 2 2 2 Associates & JV Inc 835 1,047 440 444 370 Net Interest (Exp)/Inc (405) (362) (307) (384) (429) Exceptional Gain/(Loss) 155 322 0 90 0 Pre-tax Profit 1,518 1,354 1,292 1,269 1,051 Tax (202) (169) (212) (177) (158) Minority Interest (386) (335) (317) (218) (179) Preference Dividend 0 0 0 0 0 Net Profit 930 850 764 874 715 Net Profit before Except. 775 528 764 784 715 EBITDA 1,815 1,444 1,649 1,613 1,530 Growth Revenue Gth (%) 9.3 20.5 (20.6) (0.3) 5.0 EBITDA Gth (%) 3.0 (20.5) 14.2 (2.2) (5.1) Opg Profit Gth (%) 10.8 (63.2) 237.0 (3.4) (0.8) Net Profit Gth (%) (12.0) (8.7) (10.1) 14.4 (18.2) Margins & Ratio Gross Margins (%) 37.2 27.3 62.4 63.8 63.1 Opg Profit Margin (%) 28.3 8.6 36.6 35.5 33.5 Net Profit Margin (%) 28.2 21.4 24.2 27.8 21.6 ROAE (%) 6.2 5.5 4.7 5.2 4.1 ROA (%) 2.5 2.3 2.1 2.4 1.9 ROCE (%) 2.4 0.9 2.9 2.7 2.5 Div Payout Ratio (%) 32.0 40.0 40.0 35.9 40.0 Net Interest Cover (x) 2.3 0.9 3.8 2.9 2.6
Source: Company, DBS Bank
Margins Trend
8.0%
13.0%
18.0%
23.0%
28.0%
33.0%
38.0%
2012A 2013A 2014F 2015F 2016F
Operating Margin % Net Income Margin %
Property sales recognised from its China devt projects and improving returns from its retail malls in china
Error! Reference source not found.
CapitaLand
Page 78
Quarterly / Interim Income Statement (S$ m)
FY Dec 3Q2013 4Q2013 1Q2014 2Q2014 3Q2014
Revenue 960 1,085 613 875 919 Cost of Goods Sold (661) (867) (279) (574) (610) Gross Profit 299 219 333 301 309 Other Oper. (Exp)/Inc (47) (152) (102) 124 (83) Operating Profit 252 67 232 425 227 Other Non Opg (Exp)/Inc 0 3 1 0 0 Associates & JV Inc 126 344 140 375 124 Net Interest (Exp)/Inc (118) (79) (94) (108) (105) Exceptional Gain/(Loss) 27 (36) 30 0 0 Pre-tax Profit 287 299 308 692 245 Tax (31) (79) (52) (63) (47) Minority Interest (128) (77) (108) (190) (68) Net Profit 128 143 147 439 130 Net profit bef Except. 101 178 118 439 130 EBITDA 390 426 388 800 351 Growth Revenue Gth (%) (4.8) 13.0 (43.5) 42.9 5.0 EBITDA Gth (%) (48.6) 9.2 (9.0) 106.1 (56.2) Opg Profit Gth (%) (36.1) (73.5) 247.4 83.4 (46.7) Net Profit Gth (%) (61.5) 11.4 3.1 197.6 (70.4) Margins Gross Margins (%) 31.1 20.1 54.4 34.4 33.7 Opg Profit Margins (%) 26.2 6.1 37.8 48.6 24.7 Net Profit Margins (%) 13.4 13.2 24.1 50.1 14.1
Revenue Trend
-60%
-40%
-20%
0%
20%
40%
60%
80%
0
200
400
600
800
1,000
1,200
2Q
20
12
3Q
20
12
4Q
20
12
1Q
20
13
2Q
20
13
3Q
20
13
4Q
20
13
1Q
20
14
2Q
20
14
3Q
20
14
Revenue Revenue Growth % (QoQ)
Source: Company, DBS Bank
Industry Focus
CapitaLand
Page 79
Balance Sheet (S$ m)
FY Dec 2012A 2013A 2014F 2015F 2016F
Net Fixed Assets 1,264 1,079 1,194 1,308 1,423 Invts in Associates & JVs 12,511 14,276 14,798 15,301 15,873 Invt & Devt Properties 7,969 4,935 5,435 6,025 6,525 Other LT Assets 0 0 0 0 0 Cash & ST Invts 5,699 6,117 3,406 2,912 2,334 Dev Props held for sale 7,510 7,382 9,255 10,159 11,063 Inventory 0 0 0 0 0 Debtors 1,485 1,164 924 921 968 Other Current Assets 0 0 0 0 0 Total Assets 37,788 36,155 36,214 37,829 39,387 ST Debt 782 1,194 1,194 1,194 1,194 Creditor 2,360 2,680 1,101 1,056 1,131 Other Current Liab 432 473 538 570 583 LT Debt 13,398 11,369 12,369 13,369 14,369 Other LT Liabilities 1,372 1,128 1,128 1,128 1,128 Shareholder’s Equity 15,080 16,068 16,491 17,059 17,461 Minority Interests 4,363 3,243 3,393 3,453 3,522 Total Cap. & Liab. 37,788 36,155 36,214 37,829 39,387 Non-Cash Wkg. Capital 6,203 5,393 8,540 9,455 10,318 Net Cash/(Debt) (8,481) (6,446) (10,157) (11,651) (13,229) Debtors Turn (avg days) 179.9 121.5 120.7 107.0 104.3 Creditors Turn (avg days) 416.9 323.7 606.5 361.5 341.1 Asset Turnover (x) 0.1 0.1 0.1 0.1 0.1 Current Ratio (x) 4.1 3.4 4.8 5.0 4.9 Quick Ratio (x) 2.0 1.7 1.5 1.4 1.1 Net Debt/Equity (X) 0.4 0.3 0.5 0.6 0.6 Net Debt/Equity ex MI (X) 0.6 0.4 0.6 0.7 0.8 Capex to Debt (%) 5.0 (1.4) 1.2 1.1 1.1 Z-Score (X) 1.4 1.4 1.5 1.4 1.4 Cash Flow Statement (S$ m)
FY Dec 2012A 2013A 2014F 2015F 2016F
Pre-Tax Profit 1,518 1,185 1,292 1,269 1,051 Dep. & Amort. 46 50 50 50 50 Tax Paid (153) (195) (146) (145) (145) Assoc. & JV Inc/(loss) (835) (1,047) (440) (444) (370) Chg in Wkg.Cap. (476) (112) (3,213) (946) (875) Other Operating CF 148 643 0 (90) 0 Net Operating CF 249 523 (2,457) (306) (289) Capital Exp.(net) (708) 182 (164) (164) (164) Other Invts.(net) (103) (438) (500) (500) (500) Invts in Assoc. & JV (1,404) 213 (302) (302) (302) Div from Assoc & JV 421 503 220 243 101 Other Investing CF (91) 236 0 0 0 Net Investing CF (1,886) 696 (747) (723) (866) Div Paid (493) (432) (508) (464) (423) Chg in Gross Debt 1,875 348 1,000 1,000 1,000 Capital Issues 1 2 0 0 0 Other Financing CF (427) (745) 0 0 0 Net Financing CF 956 (828) 492 536 577 Currency Adjustments (81) 18 0 0 0 Chg in Cash (761) 409 (2,711) (494) (578) Opg CFPS (S cts) 17.1 14.9 17.8 15.0 13.8 Free CFPS (S cts) (10.8) 16.6 (61.6) (11.1) (10.7)
Source: Company, DBS Bank
Asset Breakdown (2014)
Net Fixed Assets -5.9%
Assocs'/JVs -73.5%
Bank, Cash and Liquid
Assets -15.9%
Inventory -0.0%
Debtors -4.6%
Capital Expenditure
0
100
200
300
400
500
600
700
800
2012A 2013A 2014F 2015F 2016F
Capital Expenditure (-)
Page 80
www.dbsvickers.com ed: TH / sa: JC
Bloomberg: CT SP | Reuters: CMLT.SI Refer to important disclosures at the end of this report
BUY S$2.02 STI : 3,281.95 Price Target : 12-Month S$ 2.12 Potential Catalyst: Acquisitions/development Analyst Rachael Tan +65 6682 3713 +65 6682 3716 [email protected] Rachael TAN +65 6682 3713 [email protected]
Price Relative
86
106
126
146
166
186
206
1.5
1.7
1.9
2.1
2.3
2.5
Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
Relative IndexS$
Capitamall Trust (LHS) Relative STI INDEX (RHS) Forecasts and Valuation FY Dec (S$ m) 2013A 2014F 2015F 2016F
Gross Revenue 729 648 659 673 Net Property Inc 503 455 465 477 Total Return 574 570 406 413 Distribution Inc 367 437 406 413 EPU (S cts) 10.7 12.6 11.7 11.9 EPU Gth (%) (4) 18 (7) 2 DPU (S cts) 10.3 11.0 11.3 11.5 DPU Gth (%) 9 7 3 2 NAV per shr (S cts) 173.7 179.2 179.7 180.1 PE (X) 18.9 16.0 17.2 16.9 Distribution Yield (%) 5.1 5.4 5.6 5.7 P/NAV (x) 1.2 1.1 1.1 1.1 Aggregate Leverage (%) 39.9 39.7 39.5 39.5 ROAE (%) 6.3 7.2 6.5 6.6 Distn. Inc Chng (%): - - - Consensus DPU (S cts): 11.0 11.3 11.6 Other Broker Recs: B: 15 S: 2 H: 8 ICB Industry : Real Estate ICB Sector: Real Estate Investment Trust Principal Business: Real estate investment trust with a portfolio of five major shopping malls located in suburban areas in Singapore, and Class E Bonds issued by CapitaRetail Singapore Ltd. Source of all data: Company, DBS Bank, Bloomberg Finance L.P
At A Glance Issued Capital (m shrs) 3,462 Mkt. Cap (S$m/US$m) 6,994 / 5,245 Major Shareholders CapitaLand Ltd (%) 28.0 Nomura (%) 7.7 NTUC Enterprise (%) 5.7 Free Float (%) 53.6 Avg. Daily Vol.(‘000) 7,483
Industry Focus
Capitamall Trust
Key things to watch out for:
Impact of recently opened shopping malls on tenant sales
Level of demand for leasing space as retailers consolidate
Acquisition opportunities from restructured Sponsor
Investment Thesis
Expect moderate rental growth The cost of labour for most retailers has risen, placing temporary pressure on their profitability. As retailers are currently in a transition phase to improve labour productivity, we think that excessive rental growth would put too much of a cost strain on tenants. Hence, we are expecting rental growth to be moderate in the coming years. Exposure to resilient suburban retail segment ensures steady distributions CMT’s earnings are primarily derived from suburban malls and therefore cater to non-discretionary goods, which tend to be less sensitive to economic cycles. As such, income streams are resilient, and the REIT’s attractively located assets should ensure strong demand going forward.
Potential to acquire remaining 70% stake in Westgate Capitamalls Asia, CMT’s Sponsor, was acquired by Capitaland in 2014 as part of a corporate restructuring exercise. We believe that, given the Sponsor Group’s more streamlined organisational structure, more efficient capital recycling could come into play, putting CMT in a strong position to expand its presence in Singapore amid high capital values and a dry transaction season. CMT’s most obvious target would be its Sponsor’s 70% stake in Westgate, a transaction which could cost c.S$700m. Risks
Interest rate risk Any increase in interest rate will result in higher interest payments that the REIT has to make annually to service its loan. This would reduce income available for distribution, thereby resulting in lower distribution per unit (DPU) for unitholders. Economic risk A deterioration in the economic outlook could have a negative impact on retail sales and thus cap landlord’s ability to raise rents. Valuation
Our target price of S$2.12 is based on the discounted cash flow (DCF) model. At its current price, CMT offers investors a dividend yield of 5.6% for FY15. We maintain our BUY call.
Industry Focus
Capitamall Trust
Page 81
Income Statement (S$ m)
FY Dec 2012A 2013A 2014F 2015F 2016F
Gross revenue 662 729 648 659 673 Property expenses (216) (226) (193) (194) (195) Net Property Income 445 503 455 465 477 Other Operating (48) (49) (39) (39) (40) Other Non Opg (Exp)/Inc 0 0 0 0 0 Net Interest (Exp)/Inc (132) (117) (97) (96) (103) Exceptional Gain/(Loss) 84 8 0 0 0 Net Income 369 371 437 406 413 Tax 2 (1) 0 0 0 Minority Interest 0 0 0 0 0 Preference Dividend 0 0 0 0 0 Net Income After Tax 371 370 437 406 413 Total Return 536 574 570 406 413 Non-tax deductible Items (38) (3) 0 0 0 Net Inc available for Dist. 332 367 437 406 413 Growth & Ratio Revenue Gth (%) 4.9 10.2 (11.1) 1.7 2.0 N Property Inc Gth (%) 6.5 12.9 (9.4) 2.2 2.6 Net Inc Gth (%) 38.0 (0.1) 18.1 (7.1) 1.7 Dist. Payout Ratio (%) 95.4 97.0 86.7 96.4 96.4 Net Prop Inc Margins (%) 67.3 68.9 70.2 70.6 71.0 Net Income Margins (%) 56.0 50.8 67.5 61.6 61.4 Dist to revenue (%) 50.2 50.4 67.5 61.6 61.4
Managers & Trustee’s fees to sales %)
7.3 6.7 6.0 5.9 5.9
ROAE (%) 6.8 6.3 7.2 6.5 6.6 ROA (%) 3.9 3.9 4.7 4.3 4.3 ROCE (%) 4.3 4.9 4.6 4.6 4.7 Int. Cover (x) 3.0 3.9 4.3 4.4 4.3
Source: Company, DBS Bank
Net Property Income and Margins
63.9%
65.9%
67.9%
69.9%
71.9%
73.9%
75.9%
77.9%
0
100
200
300
400
500
600
2012A 2013A 2014F 2015F 2016F
S$ m
Net Property Income Net Property Income Margin %
Driven by Westgate which will start contributing on a full-year basis in FY15F
Industry Focus
Capitamall Trust
Page 82
Quarterly / Interim Income Statement (S$ m)
FY Dec 3Q2013 4Q2013 1Q2014 2Q2014 3Q2014
Gross revenue 182 186 165 164 165 Property expenses (56) (60) (50) (50) (51) Net Property Income 126 125 114 114 114 Other Operating (12) (12) (11) (11) (11) Other Non Opg (Exp)/Inc 0 0 0 0 0 Net Interest (Exp)/Inc (28) (30) (27) (26) (26) Exceptional Gain/(Loss) 0 0 2 2 1 Net Income 97 86 96 114 101 Tax 0 0 0 0 0 Minority Interest 0 0 0 0 0 Net Income after Tax 97 86 96 114 101 Total Return 97 186 96 247 101 Non-tax deductible Items 0 11 26 19 23 Net Inc available for Dist. 86 94 102 97 100 Growth & Ratio Revenue Gth (%) 14 2 (11) 0 0 N Property Inc Gth (%) 16 (1) (9) 0 0 Net Inc Gth (%) (3) (12) 13 19 (11) Net Prop Inc Margin (%) 69.3 67.6 69.4 69.4 69.3 Dist. Payout Ratio (%) 103.2 100.3 87.0 96.7 93.9
Net Property Income and Margins
62%
63%
64%
65%
66%
67%
68%
69%
70%
71%
95
100
105
110
115
120
125
130
2Q
20
12
3Q
20
12
4Q
20
12
1Q
20
13
2Q
20
13
3Q
20
13
4Q
20
13
1Q
20
14
2Q
20
14
3Q
20
14
Net Property Income Net Property Income Margin %
Source: Company, DBS Bank
Industry Focus
Capitamall Trust
Page 83
Balance Sheet (S$ m)
FY Dec 2012A 2013A 2014F 2015F 2016F
Investment Properties 8,528 7,276 7,451 7,517 7,543 Other LT Assets 230 1,093 1,093 1,093 1,093 Cash & ST Invts 1,118 830 966 928 932 Inventory 0 0 0 0 0 Debtors 13 22 31 31 32 Other Current Assets 0 0 0 0 0 Total Assets 9,889 9,220 9,540 9,569 9,599 ST Debt 405 498 498 498 498 Creditor 289 183 262 267 272 Other Current Liab 0 6 5 5 5 LT Debt 3,241 2,307 2,357 2,367 2,377 Other LT Liabilities 251 218 218 218 218 Unit holders’ funds 5,703 6,009 6,200 6,214 6,229 Minority Interests 0 0 0 0 0 Total Funds & Liabilities 9,889 9,220 9,540 9,569 9,599 Non-Cash Wkg. Capital (276) (167) (237) (241) (245) Net Cash/(Debt) (2,528) (1,975) (1,889) (1,937) (1,943) Ratio Current Ratio (x) 1.6 1.2 1.3 1.2 1.2 Quick Ratio (x) 1.6 1.2 1.3 1.2 1.2 Aggregate Leverage (%) 42.8 39.9 39.7 39.5 39.5 Z-Score (X) 5.6 6.2 6.0 6.0 6.0 Cash Flow Statement (S$ m)
FY Dec 2012A 2013A 2014F 2015F 2016F
Pre-Tax Income 369 371 437 406 413 Dep. & Amort. 0 0 0 0 0 Tax Paid 0 0 0 0 0 Associates &JV Inc/(Loss) (20) (26) (118) (76) (78) Chg in Wkg.Cap. 111 (110) 70 4 5 Other Operating CF 0 0 0 0 0 Net Operating CF 459 235 389 334 340 Net Invt in Properties (256) (159) (42) (66) (26) Other Invts (net) 0 0 0 0 0 Invts in Assoc. & JV 0 0 0 0 0 Div from Assoc. & JVs 15 8 118 76 78 Other Investing CF 122 3 0 0 0 Net Investing CF (119) (149) 76 10 52 Distribution Paid (312) (341) (379) (392) (398) Chg in Gross Debt 132 (150) 50 10 10 New units issued 200 0 0 0 0 Other Financing CF 0 (120) 0 0 0 Net Financing CF 20 (611) (329) (382) (388) Currency Adjustments 0 0 0 0 0 Chg in Cash 361 (525) 136 (38) 4 Operating CFPS (S cts) 10.5 10.0 9.2 9.5 9.7 Free CFPS (S cts) 6.1 2.2 10.0 7.7 9.1
Source: Company, DBS Bank
Aggregate Leverage
20.0%
25.0%
30.0%
35.0%
40.0%
2012A 2013A 2014F 2015F 2016F
Distribution Paid / Net Operating CF
0.3
0.5
0.7
0.9
1.1
1.3
1.5
2012A 2013A 2014F 2015F 2016F
Page 84
www.dbsvickers.com ed: TH / sa: JC
Bloomberg: CDREIT SP | Reuters: CDLT.SI Refer to important disclosures at the end of this report
BUY S$1.76 STI : 3,281.95 Price Target : 12-Month S$ 1.86 Potential Catalyst: Further acquistions Analyst Mervin SONG CFA +65 6682 3715 [email protected] Derek TAN +65 6682 3716 [email protected]
Price Relative
69
89
109
129
149
169
189
209
1.2
1.4
1.6
1.8
2.0
2.2
Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
Relative IndexS$
CDL Hospitality Trusts (LHS) Relative STI INDEX (RHS) Forecasts and Valuation FY Dec (S$ m) 2013A 2014F 2015F 2016F
Gross Revenue 149 159 178 183 Net Property Inc 137 141 155 159 Total Return 140 106 117 119 Distribution Inc 119 119 130 132 EPU (S cts) 10.7 10.9 11.9 12.1 EPU Gth (%) (4) 2 10 1 DPU (S cts) 11.0 10.9 11.9 12.0 DPU Gth (%) (3) (1) 9 1 NAV per shr (S cts) 163.8 162.8 161.8 160.8 PE (X) 16.5 16.2 14.7 14.6 Distribution Yield (%) 6.2 6.2 6.8 6.8 P/NAV (x) 1.1 1.1 1.1 1.1 Aggregate Leverage (%) 30.7 32.4 32.4 32.3 ROAE (%) 6.6 6.7 7.4 7.5 Distn. Inc Chng (%): - - - Consensus DPU (S cts): 11.0 11.5 11.6 Other Broker Recs: B: 8 S: 2 H: 8 ICB Industry : Real Estate ICB Sector: Real Estate Investment Trust Principal Business: CDL REIT is a stapled security consisting of hospitality trust with portfolio of hotel assets in Singapore and a business trust. Source of all data: Company, DBS Bank, Bloomberg Finance L.P
At A Glance Issued Capital (m shrs) 980 Mkt. Cap (S$m/US$m) 1,725 / 1,294 Major Shareholders Hospitality Holdings Pte Ltd (%) 32.0 Nomura Asset Management (%) 16.5 Aberdeen Asset Management (%) 5.0 Free Float (%) 46.5 Avg. Daily Vol.(‘000) 1,087
Industry Focus
CDL Hospitality Trusts
Key things to watch out for:
Turnaround in hotel performance in Singapore on the back of a recovery in tourist arrivals
Contribution from recently acquired Japan hotels
Potential boost from acquisitions given low gearing
Investment Thesis A leading hotel owner in Singapore. CDREIT is one of the largest hotel owners in Singapore with a market share of 6%, catering to a diverse group of corporate and leisure travellers. Hotel portfolio is mainly in the mid-tier and upscale segments, largely located near the Central Business District and Orchard Road areas. Potential upturn from 4Q14/1Q15. While CDREIT’s near-term earnings have been impacted by a downturn in tourist arrivals into Singapore and a more competitive landscape, with a potential recovery in visitor arrivals from 4Q14/1Q15, this should drive a rebound in earnings in FY15. Further upside could come from acquisitions, as CDREIT’s gearing (c.32%) is at the lower end of its target range. Strong sponsor support. CDREIT’s sponsor is London-listed Millennium & Copthorne PLC (M&C), which enables CDREIT to tap on its business and supplier networks to generate operational efficiencies. Risks Interest rate risk. Any increase in interest rates will bring about higher interest payments, which could result in lower distribution per unit (DPU) for unitholders. Currency risk. As CDREIT earns rental income from various currencies, a depreciation of any foreign currency against the SGD could negatively impact distribution income, which is distributed in SGD. Valuation Our target price of S$1.86 is based on the dividend discount model. Our BUY recommendation is premised on an expected recovery in FY15 earnings with further upside to our numbers, given CDREIT’s low gearing of c.32%. At its current level, CDREIT offers a decent yield of 6.2-6.8%.
Industry Focus
CDL Hospitality Trusts
Page 85
Income Statement (S$ m)
FY Dec 2012A 2013A 2014F 2015F 2016F
Gross revenue 150 149 159 178 183 Property expenses (10) (11) (17) (23) (24) Net Property Income 139 137 141 155 159 Other Operating (14) (14) (15) (16) (16) Other Non Opg (Exp)/Inc 0 0 0 0 0 Net Interest (Exp)/Inc (16) (17) (17) (19) (20) Exceptional Gain/(Loss) 0 0 0 0 0 Net Income 110 106 109 120 122 Tax (2) (3) (3) (3) (3) Minority Interest 0 0 0 0 0 Preference Dividend 0 0 0 0 0 Net Income After Tax 107 104 106 117 119 Total Return 122 140 106 117 119 Non-tax deductible Items 3 (1) 12 13 13 Net Inc available for Dist. 122 119 119 130 132 Growth & Ratio Revenue Gth (%) 6.0 (0.5) 6.6 12.2 2.8 N Property Inc Gth (%) 3.0 (1.4) 2.7 9.9 2.6 Net Inc Gth (%) 4.0 (3.2) 2.4 10.5 1.6 Dist. Payout Ratio (%) 90.0 90.0 90.0 90.0 90.0 Net Prop Inc Margins (%) 93.2 92.3 89.0 87.1 86.9 Net Income Margins (%) 71.7 69.7 67.0 66.0 65.2 Dist to revenue (%) 81.4 79.7 74.7 73.2 72.3
Managers & Trustee’s fees to sales %) 9.4 9.6 9.6 8.9 8.8
ROAE (%) 6.9 6.6 6.7 7.4 7.5 ROA (%) 5.0 4.7 4.5 4.9 4.9 ROCE (%) 5.8 5.4 5.2 5.7 5.9 Int. Cover (x) 8.0 7.4 7.6 7.5 7.0
Source: Company, DBS Bank
Net Property Income and Margins
82.6%
84.6%
86.6%
88.6%
90.6%
92.6%
94.6%
96.6%
98.6%
100.6%
0
20
40
60
80
100
120
140
160
180
200
2012A 2013A 2014F 2015F 2016F
S$ m
Net Property Income Net Property Income Margin %
Growth in distributable income due to recovery in the Singapore hospitality market from 2015 and boost from the recently announced Tokyo acquisitions.
Industry Focus
CDL Hospitality Trusts
Page 86
Quarterly / Interim Income Statement (S$ m)
FY Dec 3Q2013 4Q2013 1Q2014 2Q2014 3Q2014
Gross revenue 36 39 44 38 37 Property expenses (3) (3) (7) (7) (3) Net Property Income 33 36 37 31 34 Other Operating (4) (4) (4) (4) (4) Other Non Opg (Exp)/Inc 0 0 0 0 0 Net Interest (Exp)/Inc (4) (4) (4) (4) (5) Exceptional Gain/(Loss) 0 0 0 0 0 Net Income 26 28 29 23 25 Tax 0 (2) 0 (1) 0 Minority Interest 0 0 0 0 0 Net Income after Tax 26 26 28 22 25 Total Return 0 0 0 0 0 Non-tax deductible Items 3 (34) 2 5 4 Net Inc available for Dist. 29 28 30 27 28 Growth & Ratio Revenue Gth (%) 1 10 11 (13) (3) N Property Inc Gth (%) 1 10 1 (15) 8 Net Inc Gth (%) 9 3 7 (22) 12 Net Prop Inc Margin (%) 92.1 92.5 83.9 82.8 92.2 Dist. Payout Ratio (%) 90.0 90.0 90.0 90.0 90.0
Net Property Income and Margins
76%
78%
80%
82%
84%
86%
88%
90%
92%
94%
28
29
30
31
32
33
34
35
36
37
38
2Q
20
12
3Q
20
12
4Q
20
12
1Q
20
13
2Q
20
13
3Q
20
13
4Q
20
13
1Q
20
14
2Q
20
14
3Q
20
14
Net Property Income Net Property Income Margin %
Source: Company, DBS Bank
Industry Focus
CDL Hospitality Trusts
Page 87
Balance Sheet (S$ m)
FY Dec 2012A 2013A 2014F 2015F 2016F
Investment Properties 2,045 2,239 2,328 2,331 2,334 Other LT Assets 0 0 0 0 0 Cash & ST Invts 75 68 59 61 62 Inventory 0 0 0 0 0 Debtors 14 16 19 21 22 Other Current Assets 0 0 0 0 0 Total Assets 2,134 2,323 2,405 2,413 2,417 ST Debt 260 146 146 146 146 Creditor 25 22 36 41 42 Other Current Liab 0 0 3 6 9 LT Debt 270 542 608 608 608 Other LT Liabilities 15 17 17 17 17 Unit holders’ funds 1,564 1,595 1,595 1,595 1,595 Minority Interests 0 0 0 0 0 Total Funds & Liabilities 2,134 2,323 2,405 2,413 2,417 Non-Cash Wkg. Capital (12) (7) (20) (26) (29) Net Cash/(Debt) (455) (620) (696) (693) (692) Ratio Current Ratio (x) 0.3 0.5 0.4 0.4 0.4 Quick Ratio (x) 0.3 0.5 0.4 0.4 0.4 Aggregate Leverage (%) 25.9 30.7 32.4 32.4 32.3 Z-Score (X) 2.2 1.8 1.8 1.8 1.8 Cash Flow Statement (S$ m)
FY Dec 2012A 2013A 2014F 2015F 2016F
Pre-Tax Income 110 106 109 120 122 Dep. & Amort. 0 0 0 0 0 Tax Paid 0 0 0 0 0 Associates &JV Inc/(Loss) 0 0 0 0 0 Chg in Wkg.Cap. 2 (2) 11 2 1 Other Operating CF 25 27 0 0 0 Net Operating CF 136 131 120 123 123 Net Invt in Properties (5) (181) (89) (3) (3) Other Invts (net) 0 0 0 0 0 Invts in Assoc. & JV 0 0 0 0 0 Div from Assoc. & JVs 0 0 0 0 0 Other Investing CF 0 0 0 0 0 Net Investing CF (5) (181) (89) (3) (3) Distribution Paid (110) (107) (107) (117) (119) Chg in Gross Debt 0 150 66 0 0 New units issued 0 0 0 0 0 Other Financing CF (16) 0 0 0 0 Net Financing CF (126) 43 (41) (117) (119) Currency Adjustments 0 0 0 0 0 Chg in Cash 5 (7) (10) 2 1 Operating CFPS (S cts) 13.9 13.7 11.2 12.3 12.4 Free CFPS (S cts) 13.6 (5.1) 3.2 12.2 12.1
Source: Company, DBS Bank
Aggregate Leverage
10.0%
15.0%
20.0%
25.0%
30.0%
2012A 2013A 2014F 2015F 2016F
Distribution Paid / Net Operating CF
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
2012A 2013A 2014F 2015F 2016F
CDREIT remains in a strong position to pursue further acquisitions.
Page 88
www.dbsvickers.com ed: JS / sa: JC
Bloomberg: FCOT SP | Reuters: FRCR.SI Refer to important disclosures at the end of this report
BUY S$1.42 STI : 3,281.95 Price Target : 12-Month S$ 1.53 Potential Catalyst: Acquisitions/development projects Analyst Rachael TAN +65 6682 3713 [email protected] Derek TAN +65 6682 3716 [email protected]
Price Relative
86
106
126
146
166
186
206
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
Relative IndexS$
Frasers Commercial Trust (LHS) Relative STI INDEX (RHS) Forecasts and Valuation FY Sep (S$ m) 2014A 2015F 2016F 2017F
Gross Revenue 119 142 146 148 Net Property Inc 91 102 104 106 Total Return 87 60 61 63 Distribution Inc 57 69 70 72 EPU (S cts) 8.9 8.8 9.0 9.1 EPU Gth (%) (1) (1) 2 2 DPU (S cts) 8.5 10.1 10.3 10.4 DPU Gth (%) 8 19 2 1 NAV per shr (S cts) 161.3 160.3 158.7 157.1 PE (X) 16.0 16.1 15.8 15.6 Distribution Yield (%) 6.0 7.1 7.2 7.3 P/NAV (x) 0.9 0.9 0.9 0.9 Aggregate Leverage (%) 36.8 36.8 36.8 36.9 ROAE (%) 5.6 5.5 5.6 5.8 Distn. Inc Chng (%): - - Consensus DPU (S cts): 10.0 10.0 Other Broker Recs: B: 5 S: 0 H: 0 ICB Industry : Real Estate ICB Sector: Real Estate Investment Trust Principal Business: Singapore and Australian Commercial office-retail REIT
Source of all data: Company, DBS Bank, Bloomberg Finance L.P
At A Glance Issued Capital (m shrs) 679 Mkt. Cap (S$m/US$m) 964 / 723 Major Shareholders Frasers Centrepoint Ltd (%) 27.5 Nomura Asset Management (%) 18.4 Free Float (%) 54.0 Avg. Daily Vol.(‘000) 738
Industry Focus
Frasers Commercial Trust
Key things to watch out for:
Expiry of Alexandra Technopark master lease in August will drive significant earnings growth
Minimal expiries at Central Park in FY15/16 should help stabilise asset amid economic uncertainty in Perth
Potential development opportunities at existing assets
Investment Thesis
Alexandra Technopark to drive earnings. Following the expiry of Alexandra Technopark (ATP) on 25th Aug 2014, net property income is estimated to increase c.59% y-o-y, which will result in a 19% y-o-y growth in distributions in FY15. In addition, further rental upside from expiring rents at ATP will mean further earnings surprise for the trust. Diversified earnings base. FCOT’s portfolio enjoys a high occupancy of 96.5% and a long WALE of 3.9 years. A well spread out lease expiry profile will ensure minimal earnings risk for the stock in the immediate term. Risks Rising interest fates . Any increase in interest rates will result in higher interest payments for FCOT. We note that the trust has hedged 50% of its interest into fixed-rated debt and might look to raise that when interest rates do rise. Unfavourable forex movements. As FCOT derives c.49% of its income from AUD while distributions are based in SGD, foreign currency fluctuations will have an impact on distributions. The manager has hedged out its AUD exposures on a 6- to 9-month rolling basis to limit the impact of volatility on distributions. Economic risk. A deterioration in the economic outlook could have a negative impact on office rents, which have a strong historical correlation with GDP growth.
Valuation
We maintain our BUY call and DC-based TP of S$1.53. At its current price, FCOT offers investors a dividend yield of c.7.1-7.3% over FY15-17F, which is highest amongst office-focused S-REITs.
Industry Focus
Frasers Commercial Trust
Page 89
Income Statement (S$ m)
FY Sep 2013A 2014A 2015F 2016F 2017F
Gross revenue 118 119 142 146 148 Property expenses (27) (28) (40) (41) (42) Net Property Income 91 91 102 104 106 Other Operating (14) (14) (15) (15) (15) Other Non Opg (Exp)/Inc 19 2 0 0 0 Net Interest (Exp)/Inc (21) (21) (21) (22) (22) Exceptional Gain/(Loss) 0 0 0 0 0 Net Income 75 58 66 68 69 Tax (8) 2 (5) (5) (6) Minority Interest 0 0 0 0 0 Preference Dividend (7) 0 (1) (1) (1) Net Income After Tax 59 60 60 61 63 Total Return 154 87 60 61 63 Non-tax deductible Items (103) (30) 9 9 9 Net Inc available for Dist. 51 57 69 70 72 Growth & Ratio Revenue Gth (%) (11.0) 0.5 19.7 2.3 1.9 N Property Inc Gth (%) (11.3) (0.4) 12.9 2.1 1.8 Net Inc Gth (%) (28.1) 1.1 0.0 2.8 2.6 Dist. Payout Ratio (%) 100.0 100.0 100.0 100.0 100.0 Net Prop Inc Margins (%) 76.9 76.2 71.9 71.7 71.6 Net Income Margins (%) 50.0 50.3 42.0 42.2 42.5 Dist to revenue (%) 43.5 48.2 48.2 48.3 48.5
Managers & Trustee’s fees to sales %)
12.1 11.7 10.6 10.5 10.3
ROAE (%) 5.8 5.6 5.5 5.6 5.8 ROA (%) 2.8 3.2 3.2 3.3 3.3 ROCE (%) 3.3 4.2 4.3 4.4 4.5 nt. Cover (x) 3.6 3.7 4.1 4.1 4.2
Source: Company, DBS Bank
Net Property Income and Margins
68.0%
70.0%
72.0%
74.0%
76.0%
78.0%
80.0%
82.0%
84.0%
0
20
40
60
80
100
120
140
160
180
200
2013A 2014A 2015F 2016F 2017F
S$ m
Net Property Income Net Property Income Margin %
Topline growth mainly coming from ATP
Interest costs to remain fairly stable after refinancing
Industry Focus
Frasers Commercial Trust
Page 90
Quarterly / Interim Income Statement (S$ m)
FY Sep 4Q2013 1Q2014 2Q2014 3Q2014 4Q2014
Gross revenue 29 29 29 30 32 Property expenses (7) (7) (7) (7) (8) Net Property Income 22 22 22 23 24 Other Operating (4) (3) (3) (3) (4) Other Non Opg (Exp)/Inc (1) 0 0 (1) 1 Net Interest (Exp)/Inc (5) (5) (5) (5) (6) Exceptional Gain/(Loss) 0 0 0 0 0 Net Income 12 14 13 14 15 Tax (7) (1) (1) (1) 5 Minority Interest 0 0 0 0 0 Net Income after Tax 5 12 13 13 20 Total Return 106 12 13 13 49 Non-tax deductible Items (92) 1 1 2 (34) Net Inc available for Dist. 14 14 14 15 15 Growth & Ratio Revenue Gth (%) (4) 0 (1) 4 7 N Property Inc Gth (%) (5) 1 (2) 6 4 Net Inc Gth (%) (65) 136 3 4 51 Net Prop Inc Margin (%) 75.9 76.9 75.9 77.3 74.8 Dist. Payout Ratio (%) 100.0 100.0 100.0 100.0 100.0
Net Property Income and Margins
72%
73%
74%
75%
76%
77%
78%
0
5
10
15
20
25
30
3Q
20
12
4Q
20
12
1Q
20
13
2Q
20
13
3Q
20
13
4Q
20
13
1Q
20
14
2Q
20
14
3Q
20
14
4Q
20
14
Net Property Income Net Property Income Margin %
Source: Company, DBS Bank
Industry Focus
Frasers Commercial Trust
Page 5-
Balance Sheet (S$ m)
FY Sep 2013A 2014A 2015F 2016F 2017F
Investment Properties 1,811 1,825 1,828 1,831 1,834 Other LT Assets 0 0 0 0 0 Cash & ST Invts 43 47 49 44 39 Inventory 0 0 0 0 0 Debtors 8 9 9 9 9 Other Current Assets 1 1 1 1 1 Total Assets 1,863 1,882 1,887 1,885 1,883 ST Debt 127 0 0 0 0 Creditor 22 22 22 22 22 Other Current Liab 7 4 9 9 9 LT Debt 572 692 694 694 694 Other LT Liabilities 73 72 72 72 72 Unit holders’ funds 1,049 1,091 1,089 1,087 1,085 Minority Interests 12 0 0 0 0 Total Funds & Liabilities 1,863 1,882 1,887 1,885 1,883 Non-Cash Wkg. Capital (20) (17) (21) (21) (22) Net Cash/(Debt) (657) (645) (645) (650) (655) Ratio Current Ratio (x) 0.3 2.2 1.9 1.7 1.6 Quick Ratio (x) 0.3 2.2 1.9 1.7 1.6 Aggregate Leverage (%) 37.6 36.8 36.8 36.8 36.9 Z-Score (X) 4.4 4.5 4.5 4.5 4.5 Cash Flow Statement (S$ m)
FY Sep 2013A 2014A 2015F 2016F 2017F
Pre-Tax Income 75 58 66 68 69 Dep. & Amort. 0 0 0 0 0 Tax Paid 0 (2) (1) (5) (5) Associates &JV Inc/(Loss) 0 0 0 0 0 Chg in Wkg.Cap. (26) 10 0 0 0 Other Operating CF 4 16 7 7 7 Net Operating CF 52 82 72 69 71 Net Invt in Properties (31) (3) (3) (3) (3) Other Invts (net) 0 0 0 0 0 Invts in Assoc. & JV 0 0 0 0 0 Div from Assoc. & JVs 0 0 0 0 0 Other Investing CF 1 0 0 0 0 Net Investing CF (31) (3) (3) (3) (3) Distribution Paid (77) (49) (69) (70) (72) Chg in Gross Debt (31) 2 2 0 0 New units issued 0 0 0 0 0 Other Financing CF (344) (27) (1) (1) (1) Net Financing CF (451) (74) (67) (71) (73) Currency Adjustments 0 0 0 0 0 Chg in Cash (430) 5 2 (5) (5) Operating CFPS (S cts) 12.0 10.7 10.6 10.1 10.3 Free CFPS (S cts) 3.2 11.7 10.2 9.7 9.8
Source: Company, DBS Bank
Aggregate Leverage
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
2013A 2014A 2015F 2016F 2017F
Distribution Paid / Net Operating CF
0.2
0.4
0.6
0.8
1.0
1.2
1.4
2013A 2014A 2015F 2016F 2017F
Stable gearing of 36.8%
Page 92
www.dbsvickers.com ed: TH / sa: JC
Bloomberg: MAGIC SP | Reuters: MAPE.SI Refer to important disclosures at the end of this report
BUY S$0.95 STI : 3,281.95 Price Target : 12-Month S$ 1.04 Potential Catalyst: Acquisitions Analyst Mervin SONG CFA +65 6682 3715 [email protected] Derek TAN +65 6682 3716 [email protected]
Price Relative
80
100
120
140
160
180
200
220
0.7
0.8
0.9
1.0
1.1
1.2
1.3
Mar-13 Aug-13 Jan-14 Jun-14 Nov-14
Relative IndexS$
Mapletree Greater China Commercial Trust (LHS)
Relative STI INDEX (RHS) Forecasts and Valuation FY Mar (S$ m) 2014A* 2015F 2016F 2017F
Gross Revenue 268 263 280 293 Net Property Inc 216 209 222 232 Total Return 389 126 137 145 Distribution Inc 168 167 182 191 EPU (S cts) 4.5 4.7 5.0 5.3 EPU Gth (%) 116 5 7 5 DPU (S cts) 6.3 6.2 6.7 6.9 DPU Gth (%) 136 (1) 8 4 NAV per shr (S cts) 105.8 104.3 102.6 101.0 PE (X) 21.3 20.3 18.9 18.0 Distribution Yield (%) 6.6 6.5 7.0 7.3 P/NAV (x) 0.9 0.9 0.9 0.9 Aggregate Leverage (%) 38.0 38.4 38.5 38.7 ROAE (%) 4.5 4.5 4.9 5.2
Distn. Inc Chng (%): - - - Consensus DPU (S cts): 6.2 6.7 6.7 Other Broker Recs: B: 6 S: 1 H: 2 ICB Industry : Real Estate ICB Sector: Real Estate Investment Trusts Principal Business: MGCCT is commercial landlord with properties in HK and China.
Source of all data: Company, DBS Bank, Bloomberg Finance L.P * from listing date to Mar’14
At A Glance Issued Capital (m shrs) 2,713 Mkt. Cap (S$m/US$m) 2,578 / 1,933 Major Shareholders Mapletree Investments (%) 37.9 Norges Bank (%) 4.9 Free Float (%) 57.2 Avg. Daily Vol.(‘000) 3,669
Industry Focus
Mapletree Greater China Commercial Trust
Key things to watch out for:
Healthy rental reversions at Gateway Plaza albeit at a slower rate due to a higher base effect
Rental reversions to be driven by tenant remixing at Festival Walk and uplift to market rates at Gateway Plaza
Potential acquisition opportunities in China
Investment Thesis
Positive rental reversions to continue MAGIC continues to see healthy demand for its properties and for 1H15 it achieved 21% and 32% uplifts in rents for the retail space in Festival Walk and office space in Gateway Plaza respectively. In addition, 87% of expiring leases in FY15 have already been renewed or re-let. With expectations of continued tenant sales growth and active tenant management, MAGIC should see healthy uplifts in rents over the coming year, albeit at a slower rate. Upside from acquisitions With gearing standing at c.38%, MAGIC’s balance sheet provides some headroom for acquisitions. With a potential window opening up in China due to a slowing economy, MAGIC is well positioned to take advantage of any acquisition opportunities.
Risks
Foreign exchange risks Given its overseas focus, the trust is exposed to foreign exchange risk although this is minimised over the coming year with 90% of its HK$ income hedged in FY15. Rental income is collected in Hong Kong dollars and renminbi, while distributions are paid in S$ respectively. Interest rate risks An increase in interest rates will negatively impact distributions. However, interest costs for 77% of total debt due from FY15-16 and 53% of total remaining debt until end-FY17 have been hedged. Valuation
We maintain our DCF-based TP of S$1.04 and BUY recommendation. The trust offers investors FY15-17F distribution yields of 6.5-7.3% and a 15% total return. In addition, MAGIC trades at only 0.9x book.
Industry Focus
Mapletree Greater China Commercial Trust
Page 93
Income Statement (S$ m)
FY Mar 2014A* 2015F 2016F 2017F
Gross revenue 268 263 280 293 Property expenses (51) (54) (58) (61) Net Property Income 216 209 222 232 Other Operating expenses (24) (17) (19) (19) Other Non Opg (Exp)/Inc 0 0 0 0 Net Interest (Exp)/Inc (42) (41) (41) (41) Exceptional Gain/(Loss) 0 0 0 0 Net Income 150 151 163 172 Tax (30) (25) (26) (27) Minority Interest 0 0 0 0 Preference Dividend 0 0 0 0 Net Income After Tax 119 126 137 145 Total Return 389 126 137 145 Non-tax deductible Items 49 41 45 46 Net Inc available for Dist. 168 167 182 191 Growth & Ratio Revenue Gth (%) 137.0 (1.9) 6.6 4.6 N Property Inc Gth (%) 140.7 (3.5) 6.5 4.5 Net Inc Gth (%) 117.2 5.6 8.2 6.1 Dist. Payout Ratio (%) 100.0 100.0 100.0 100.0 Net Prop Inc Margins (%) 80.8 79.5 79.4 79.3 Net Income Margins (%) 44.6 48.1 48.8 49.5 Dist to revenue (%) 62.9 63.7 65.0 65.2
Managers & Trustee’s fees to sales %) 9.1 6.4 6.6 6.4
ROAE (%) 4.5 4.5 4.9 5.2 ROA (%) 2.6 2.6 2.8 3.0 ROCE (%) 3.5 3.5 3.7 3.9 Int. Cover (x) 4.6 4.7 5.0 5.2
Source: Company, DBS Bank
* from listing date to Mar’14
Net Property Income and Margins
75.3%
77.3%
79.3%
81.3%
83.3%
85.3%
87.3%
0
50
100
150
200
250
300
2013A 2014A 2015F 2016F 2017F
S$ m
Net Property Income Net Property Income Margin %
Earnings driven by organic rental reversions at Festival Walk and Gateway Plaza
Industry Focus
Mapletree Greater China Commercial Trust
Page 94
Quarterly / Interim Income Statement (S$ m)
FY Mar 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015
Gross revenue 63 66 65 64 67 Property expenses (13) (12) (12) (11) (12) Net Property Income 51 54 53 53 55 Other Operating (6) (6) (6) (6) (6) Other Non Opg (Exp)/Inc 0 0 0 1 1 Net Interest (Exp)/Inc (10) (10) (10) (10) (10) Exceptional Gain/(Loss) (5) 0 0 0 (1) Net Income 29 38 37 39 39 Tax (6) (7) (10) (6) (7) Minority Interest 0 0 0 0 0 Net Income after Tax 23 31 26 32 33 Total Return 23 31 26 32 33 Non-tax deductible Items 16 9 16 10 11 Net Inc available for Dist. 39 41 43 42 43 Growth & Ratio Revenue Gth (%) 7 4 (1) (2) 6 N Property Inc Gth (%) 6 6 (2) 0 5 Net Inc Gth (%) (13) 35 (16) 22 2 Net Prop Inc Margin (%) 80.2 81.9 81.2 82.4 81.7 Dist. Payout Ratio (%) 100.0 100.0 100.0 100.0 100.0
Net Property Income and Margins
79%
80%
80%
81%
81%
82%
82%
83%
83%
44
46
48
50
52
54
56
1Q
20
14
2Q
20
14
3Q
20
14
4Q
20
14
1Q
20
15
2Q
20
15
Net Property Income Net Property Income Margin %
Source: Company, DBS Bank
Industry Focus
Mapletree Greater China Commercial Trust
Page 95
Balance Sheet (S$ m)
FY Mar 2014A 2015F 2016F 2017F
Investment Properties 4,722 4,722 4,725 4,729 Other LT Assets 1 1 1 1 Cash & ST Invts 133 91 73 52 Inventory 1 1 1 1 Debtors 9 4 4 4 Other Current Assets 7 7 7 7 Total Assets 4,873 4,825 4,810 4,793 ST Debt 0 0 0 0 Creditor 64 45 47 50 Other Current Liab 38 27 28 29 LT Debt 1,853 1,853 1,853 1,853 Other LT Liabilities 79 79 79 79 Unit holders’ funds 2,840 2,822 2,802 2,782 Minority Interests 0 0 0 0 Total Funds & Liabilities 4,873 4,825 4,810 4,793 Non-Cash Wkg. Capital (85) (59) (64) (67) Net Cash/(Debt) (1,720) (1,762) (1,780) (1,800) Ratio Current Ratio (x) 1.5 1.4 1.1 0.8 Quick Ratio (x) 1.5 1.4 1.1 0.8 Aggregate Leverage (%) 38.0 38.4 38.5 38.7 Z-Score (X) 0.9 0.9 0.9 0.9 Cash Flow Statement (S$ m)
FY Mar 2014A* 2015F 2016F 2017F
Pre-Tax Income 150 151 163 172 Dep. & Amort. 2 3 4 4 Tax Paid (30) (25) (26) (27) Associates &JV Inc/(Loss) 0 0 0 0 Chg in Wkg.Cap. (59) (25) 4 3 Other Operating CF 114 0 0 0 Net Operating CF 176 104 145 152 Net Invt in Properties (2,034) 0 (4) (4) Other Invts (net) 0 0 0 0 Invts in Assoc. & JV 0 0 0 0 Div from Assoc. & JVs 0 0 0 0 Other Investing CF 0 0 0 0 Net Investing CF (2,034) 0 (4) (4) Distribution Paid (85) (167) (182) (191) Chg in Gross Debt (297) 0 0 0 New units issued 2,403 23 25 26 Other Financing CF (33) 0 0 0 Net Financing CF 1,988 (144) (156) (165) Currency Adjustments 4 0 0 0 Chg in Cash 134 (41) (16) (17) Operating CFPS (S cts) 8.8 4.8 5.2 5.4 Free CFPS (S cts) (69.4) 3.8 5.2 5.4
Source: Company, DBS Bank * from listing date to Mar’14
Aggregate Leverage
20.0%
25.0%
30.0%
35.0%
40.0%
2013A 2014A 2015F 2016F 2017F
Distribution Paid / Net Operating CF
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
2013A 2014A 2015F 2016F 2017F
Industry Focus
Singapore Property
Page 96
DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates (collectively, the “DBS Vickers Group”) only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk
assessments stated therein. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. ANALYST CERTIFICATION The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of the date the report is published, the analyst and his/her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities).
Industry Focus
Singapore Property
Page 97
COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd., DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), their subsidiaries and/or other affiliates do not have a
proprietary position in company mentioned recommended in this report as of 30 Nov 2014 except CapitaCommercial Trust, CapitaRetail China Trust, Capitamall Trust, Croesus Retail Trust, SPH REIT, Mapletree Commercial Trust, Mapletree Greater China Commercial Trust, Starhill Global REIT, Suntec REIT, Ascendas India Trust, Ascendas REIT, Cache Logistics Trust, Cambridge Industrial Trust, Mapletree Industrial Trust, Mapletree Logistics Trust, Soilbuild Business Space Reit, Ascendas Hospitality Trust, Ascott Residence Trust, CDL Hospitality Trusts, Far East Hospitality Trust, Frasers Hospitality Trust, OUE Hospitality Trust, Parkway Life Real Estate Investment Trust, CapitaLand, City Development, Wing Tai, Global Logistic Properties, UOL Group
2. DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates beneficially own a total of 1% of any class of common equity securities of Croesus Retail Trust, Mapletree Greater China Commercial Trust, Starhill Global REIT, Soilbuild Business Space Reit, Ascendas Hospitality Trust, Ascott Residence Trust, Far East Hospitality Trust Frasers Hospitality Trust and 5% interest of Croesus Retail Trust, Ascendas Hospitality Trust as of 30 Nov 2014.
3.
Compensation for investment banking services: DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates have received compensation, within the past 12 months, and within the next 3 months may receive or intends to seek compensation for investment banking services from Croesus Retail Trust, Frasers Centrepoint Trust, Mapletree Greater China Commercial Trust, Suntec REIT, Ascendas India Trust, Soilbuild Business Space Reit, Ascott Residence Trust, Frasers Hospitality Trust, IREIT Global, Frasers Centrepoint Trust, Wheelock Properties, UOL Group. DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.
RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or
located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.
Australia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.
Hong Kong This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission.
Indonesia This report is being distributed in Indonesia by PT DBS Vickers Securities Indonesia.
Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR") (formerly known as HwangDBS Vickers Research Sdn Bhd). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.
Wong Ming Tek, Executive Director, ADBSR
Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.
Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it.
United Kingdom
This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Conduct Authority. Research distributed in the UK is intended only for institutional clients.
Industry Focus
Singapore Property
Page 98
Dubai
This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.
United States
Neither this report nor any copy hereof may be taken or distributed into the United States or to any U.S. person except in compliance with any applicable U.S. laws and regulations. It is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.
Other jurisdictions
In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.
DBS Bank Ltd.
12 Marina Boulevard, Marina Bay Financial Centre Tower 3
Singapore 018982 Tel. 65-6878 8888
Company Regn. No. 196800306E
