City Dev - Buy by DBS Vickers (7 July 2009)

DBS Vickers gave a buy call on City Dev. How will the new ruling on the tax of property gains affect property stocks? I am not too sure also. Below is the report by DBS Vickers

Singapore Smorgasbord
• Launches galore from the listed developer with the largest Singapore residential landbank
• Take your pick from a varied mix of upcoming projects
• 20% Premium to RNAV Maintained, in line with our upgrade of sector to Overweight back in Apr
• Reiterate BUY, TP of S$10.67 offers 27% upside; City Dev is our top big-cap pick for the developers

A Stamp of Confidence. Attracting one of the strongest client interests at our ‘Pulse of Asia’ conference, City Dev stamped its confidence in the demand fundamentals underlying the mass and mid-tier residential market, even if the high-end segment may take a couple more quarters before seeing a re-ignition of interest. It continues to be business as usual for City Dev, as it readies new launches with an array of projects catering to every market segment.

Something For Every Appetite. Having already sold 500 units in 1H09, it is poised to sell another 500 units in 2H09. On the menu are high-end Volari in Jul/Aug (former Garden Hotel at Balmoral Road), a mass-mid market project at the former Hong Leong Garden in Sep, and two mass-market sites – The Gale in July (33% stake, at Upper Changi) and another Pasir Ris project at year-end. And if buying appetites aren’t sufficiently sated, high-end Quayside at Sentosa is launch-ready.

BUY, 27% Upside to TP of S$10.67. After adjusting ASPs for Hong Leong Garden and marking-to-market its listed entities, our RNAV is revised up to S$8.90 (from S$8.79). We keep a 20% premium on the stock, which is close to historical +1SD levels, for a TP of S$10.67 (prev S$10.55) giving a 27% upside. Reiterate BUY on our top big-cap pick for the property developers.

CapitaCommercial Trust (CCT) - Buy by OCBC (6 July 2009)

I don't own any shares of CapitaCommercial Trust (CCT). They have just completed a rights issue. Current trading price is $0.815. Below is a report from OCBC issuing a buy call on CCT. Contemplating whether I should enter into it

Rights issue completed. CapitaCommercial Trust (CCT) had recently completed its Rights issue with 1.4b new units listed last Friday, bringing the total number of outstanding units to 2.8b. The Rights issue was well accepted, with a subscription rate of 135.4% of the total units available under the Rights issue. With the completion of the Rights issue, CCT's gearing will decline from 43.1% to 30.7%, after the repayment of borrowings using the proceeds.

Slower rate of decline in office rental but cautiousness is warranted. According to Jones Lang LaSalle, average prime Grade A office rental declined 11% QoQ to S$9.50 psf per month in 2Q09 and the decline had decelerated in comparison to the 28% QoQ decline in 1Q09. Despite the positive news, our fundamental view of a worsening office market going forward remains unchanged. The slower rate of decline also came after a steep decline in rental in 1Q09. The office market in Singapore will continue to be plagued by the huge oncoming supply of new office space (13.9m sq ft in the pipeline) and shadow space that will continue to put downward pressure on office rental.

Current gearing sufficient to withstand devaluation through downturn. At a post-Rights gearing of 30.7% after the recent revaluation of its properties, CCT can withstand a further S$1,995.6m or 31.8% decline in the valuation of its properties before it reaches the upper bound of its comfortable gearing range of 30%-45% and this is also more than the S$1,581.5m or 26.2% decline in valuation (based on latest valuation report) that we have factored in our RNAV computation. We believe that this provides a sufficient buffer for CCT to tide over the asset devaluation during this downturn without the need to tap on the equity market again.

Maintain BUY. Despite the weak sector outlook, we continue to like CCT for its quality office assets and strong management which is evident in the high portfolio occupancy rates, diversified tenant base and long established tenant-landlord relationship. Support from a strong sponsor - CapitaLand - also provides an added level of comfort to investors in turbulent time. Based on CCT's current price/NAV ratio of 0.54x, the market is now factoring in a 32.4% decline in asset value, which is over-excessive in our view. Success of its Rights issue has also removed refinancing concerns going forward. We maintain our BUY rating on CCT with fair value of S$0.96.

CapitaMall Trust - Buy By UBS (6 July 2009)

A buy call by UBS on CapitaMall Trust (CMT). Overall, Real Estate Investment Trusts (REITs) are still quite far away from their all time highs.


We raise net property income estimates for 4 malls
We raise our net property income (NPI) estimates for Funan mall, Sembawang mall, and Plaza Singapura due to better-than-expected performance in Q109, and include asset enhancement for Jurong Entertainment Centre. Overall, we raise our 2009-13 EPS estimates by 4-9%.

We like CMT and Suntec, but prefer developers to SREITs
We continue to prefer high-beta developers to defensive SREITs, as we expect positive momentum on the residential front to translate to share price performance. Our top picks are UBS Key Call City Developments and CapitaLand. Among REITs, CMT’s performance has lagged the SREIT index by 15%. We think there is scope for the gap to narrow as CMT has the lowest gearing among the four large REITs at 29%, a conservative capital structure, and a top-tier management.

April retail sales down 4% YoY and tracking expectations
April retail sales ex. motor vehicles decreased 4% YoY with discretionary categories like household, apparel, and jewellery posting the largest declines. This is in line with our projection of a 4-5% decline in retail sales for 2009. We expect conditions to get worse particularly for central area malls when new supply is completed. Tourism, which continues to be weak, remains a key factor in arresting the decline.

Valuation: raise price target from S$1.25 to S$1.48; maintain Buy rating
We raise our price target from S$1.25 to S$1.48 on the back of slightly higher DPU and adjustment to our discount rate from 8.4% to 7.6%. Our price target is DCF-derived using 2.6% risk-free rate, 1x beta, and 5% market risk premium.

Suntec REIT - Outperform by CIMB (3 Jul 2009)

I currently own 11,000 shares in Suntec REIT. The price has been going down in the recent weeks. CIMB has issued an Outperform call on this REIT. See details of the report below:

First mixed commercial REIT in Singapore. Listed on the Singapore Exchange on 9 Dec 04, Suntec REIT owns almost 3m sf of prime commercial space in Singapore, consisting of retail and office properties in Suntec City, Park Mall, Chijmes and a one-third interest in One Raffle Quay.

Weak office outlook, but retail has growth potential. Weighed down by large upcoming supply and increasing shadow space, the outlook for the office sector remains weak. In our view, there is more room for upside surprises from the retail segment, catalysed by an increased catchment population from two new MRT stations at Suntec City, and direct linkage to the Marina Bay integrated resort.

Positives from ample liquidity and low interest rates. Our economists expect high liquidity and low interest rates to persist in a climate of weak global growth. This would be highly positive for REITs which should benefit from relatively easier and cheaper financing, as well as attractive spreads to government bond yields.

Initiate coverage with Outperform and DDM-derived target price of S$1.07 (discount 9.4%). We like Suntec REIT for its: 1) quality office and retail portfolio; 2) low leverage of 34.4%; 3) absence of refinancing concerns until 2011; and 4) severely discounted price for a possible fall in asset values. We believe that downside risks for the office sector have been factored into its price while upside surprises from its retail segment have largely been neglected.

Pacific Andes - Buy by OCBC (3 July 2009)

I own 37000 shares in Pacific Andes. It has recently launched a rights issue to raise more capital.

Commencement of trading of "nil paid" rights = 2 July 2009 09oohrs
Last date and time for trading of "nil paid" rights = 10 July 2009 1700hrs

OCBC Securities also posted a Buy call on Pacific Andes Holding stating that it is worth a Buy even after post rights. Personally, I would like to get out of this stock once it manage to rise past a certain price. They have been simply issuing too many new shares for my liking. Below is the report from OCBC Securities:

Rights issue to raise S$209m. Pacific Andes Holdings' (PAH) Rights issue is progressing smoothly with the current trading of the "nil-paid" rights. Upon the completion of the rights and warrant exercise, the group would have raised about S$208.68m (or a net proceed of S$204m). Funds from the Rights cum warrant issue will be largely deployed as part of its working capital and for general corporate expenses. With this exercise, the overhang on capital raising is removed and the group is in a better financial position. Gearing is also expected to come down from 0.9x to about 0.6x (see next page for table on important dates and times).

Is current high oil price a concern? Recent rebound in crude oil prices could once again sparked concerns over its costs of bunkers. However, bunker cost as a percentage of PAH's cost of sales is fairly manageable at about 10% in FY08 and 11% in FY09 (even when oil prices shot to record high levels of more than US$140 per barrel). As such, at current crude oil price of US$70 per barrel, we are not overly concerned about the impact on its margins.

Maintain BUY, adjusting fair value post-Rights. Recently, PAH's posted a credible double-digit earnings growth of 38% in FY09 earnings to HK$664m. For the current year, we are expecting earnings of HK$720m before rising to HK$822m in FY11. The improvement will come largely from organic growth, stemming from the deployment of five vessels to the South Pacific (which will mean increased catch volume) as well as better synergies from its integrated Peru operation. While global economic signals remain mixed, we believe that fish consumption will at most be mildly affected as consumption patterns are unlikely to change too drastically and fish is an affordable source of protein. Risks to our earnings include the escalation of the current H1N1 outbreak, slower fish demand from China, and any regulatory issues with the Russian fishing quotas (which still formed the bulk of its operation). Maintaining the same peg of 6x blended earnings, our post-rights adjusted fair value estimate is 31 cents. The stock has done very well this year, outperforming the STI with a gain of 68% versus 32% for the STI. With the current softness in the market and with a potential upside of 48% to our fair value, we are reiterating our BUY rating.

Suntec REITs - Hold by Philips Securities

I currently own 11 lots of Suntec REIT. Below is a report from Philips regarding Suntec REIT.

Our fundamental view of Suntec REIT has not changed. We feel revenue is still being subjected to pressure as Singapore goes through the recession. We feel key issues for the management will be to maintain the rental while keeping occupancy of the portfolio stable.

Suntec REIT has 64% of its portfolio NLA exposed to the office sector and 34% exposed to the retail sector. 77% of office leases are expiring over the next 3 years and we are concern about falling reversionary rent achieved by the expiring office leases. Although expiring leases rent is lower than the passing average rent, however average rent for leases secured has peaked out in 2Q08 and has fallen 26% in 1Q09. Furthermore, Suntec REIT office portfolio could come under pressure from the completion of over 9.2 million sqf of office space in the core downtown area over the next five years. Given that our outlook is for a bottoming of office rent in 2010Q4, we would expect the gap between expiring leases and renewal leases to converge with a negative bias.

Suntec has no near term refinancing concern. It has successfully secure $825 million of term loan in April 2009. The current gearing is 35%. Although management has not indicated any acquisition plans, we believe that Suntec will build up its equity balance for two reasons; in anticipation of asset devaluation and to ready itself for any opportunities that arise for its next phase of growth. Currently Suntec owns approximately 57% of Suntec City Office Towers, it may resume its program to acquire strata office units not presently owned.

Valuation & recommendation. We revise our average rent and occupancy assumptions and reduce our DPU forecasts over FY09F-FY11F by 4%-9%. We maintain our Hold rating and raise our fair value from $0.69 to $0.94 mainly on lower WACC assumptions.

KPMG raises concern over MacarthurCook Industrial REIT

Got this news from Channel news Asia:

KPMG, the auditor for MacarthurCook Industrial REIT (MI Reit), said the property trust's ability to continue depends on whether it can refinance borrowings which are due by the end of the year.

It did not qualify its opinion.

The trust has total borrowings of S$224.3 million that are maturing this December. It has also committed to buying a property for S$91 million, which is expected to be settled in the last quarter of 2009.

In a filing with the Singapore Exchange, MacarthurCook Industrial said it is working to refinance the borrowings and to secure funds for the acquisition of the property