Singapore Industry Focus
Singapore Property Refer to important disclosures at the end of this report
DBS Group Research . Equity 8 Jan 2015
STI : 3,281.95 Year of Reckoning Analyst Modest growth prospects for Singapore property Derek TAN +65 6682 3716 market; sectors linked to external demand to do well [email protected]
Prefer Developers to S-REITs on valuations Mervin SONG CFA +65 6682 3715 [email protected] S-REITs – focus on growth rather than rate hikes Rachael TAN +65 6682 3713 Modest growth prospects; sectors linked to external The Singapore property market [email protected] demand to outperform. will likely see a further downshift in growth in 2015 as prices STOCKS PICKS and rentals across major real estate subsectors feel the brunt Price Mkt Cap Target Price Yield (%) P/Bk of ongoing economic restructuring (Retail sector). In addition, (S$) demand/supply imbalance due to supply completion schedules 6/1/15 US$m S$ FY15F FY15F Rating is positive for Office prospects but result in a drop in rents and Developers prices in Industrial and Residential sector respectively. We CapitaLand 3.24 10,349 3.84 2.3% 0.8 BUY believe that the Hospitality sector will post a rebound in RevPARs as accommodation demand (mainly from China) REITs 1.75 1,294 1.86 6.8% 1.1 BUY picks up faster than supply growth. CDL Hospitality Trusts From a valuation Prefer Property Developers to S-REITs. Ascendas REIT 2.40 4,276 2.49 6.3% 1.2 BUY perspective, we prefer developers to S-REITs as we expect Capitamall Trust 2.06 5,245 2.12 5.5% 1.2 BUY valuations to normalize towards historical average of 0.90x Mapletree Greater 0.95 1,932 1.04 7.0% 0.9 BUY P/Bk NAV (vs 0.83x P/Bk NAV currently) while forward yield China Trust spreads at c. 3.5% for S-REITs is already at normalized Frasers Commercial 1.42 723 1.53 7.1% 0.9 BUY historical average levels, which we deem to be fair. Trust
Property Developers – opportunities outside of Source: Bloomberg Finance LLP, DBS Bank 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.
www.dbsvickers.com ed: TH / sa: JC
Industry Focus
Singapore Property
Table of Contents Derek TAN (65) 6682 3716 [email protected] Investment Summary 3 Mervin SONG CFA (65) 6682 3715 [email protected] Key Charts 4
Rachael TAN (65) 6682 3713 Peer Comparisons 7 [email protected] 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
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Industry Focus Singapore Property
1. Investment Summary With a reduced population growth rate resulting in slowing
Subdued outlook for Singapore property market - sectors demand, we see prices falling by up to c.15% over 2015- hinging on external demand to do better. 2015 will continue 2016 in anticipation of (i) a hike in supply completion over to be a year of further moderation for Singapore property 2015-2016, resulting in vacancy rates rising to 9%-10%, and market with most real estate subsectors expected to feel the (ii) “yield compression on the back of weakening rental rates brunt of ongoing economic restructuring or demand/supply impacting and rising interest cost. imbalance due to a spike in supply completions in 2015/2016. Strategies for: Office rents to peak in 1H16; office REITs’ prices typically lead spot rents by 9months-1year. Amongst the key real estate Singapore REITs – stock specific catalyst to drive sectors, we see the brightest rental prospects in the office performance 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 Singapore REITs have done their job well over the past two positive flow-through to demand in the Business Parks/Sub- years, offering investors stable returns in market uncertainty. urban office space. We are however, aware of the medium Looking into 2015, while timing of rate hikes will remain a term risk in the sector due to a skew in supply completions in sector overhang, we see road-bumps to further 2016/2017 and expect medium term downside risks. Office outperformance from (i) a modest DPU growth of c.5.3% REITs prices typically lead spot rents by 9 months to 1 year, with downside risks in earnings stemming from Singapore’s meaning that further upside from current levels is limited. domestic restructuring impacting on margins, (ii) forex exchanges losses (especially for S-REITs with exposure to the Hospitality – rebound from a low base. We believe that the AUD/JPY and EUR) will be a key dampener for earnings in Singapore hospitality sector is poised for a rebound in 2015 2015 and (iii) strengthening USD-SGD which may lead to driven by returning tourists from China. We project demand fund outflows from the sector. We expect S-REITs to continue for accommodation to more than compensate for a 5.7% to look at overseas for growth opportunities and acquisitions growth in room supply. RevPARs is expected to post a to feature. Catalyst will come from clarity from the recent turnaround, albeit at a more moderate rate of 3.6%. MAS consultant paper and expiring tax incentives. Our preferences are S-REITs with the opportunity to surprise on Retail remains resilient; but reversions to fall below inflation the upside through acquisitions or portfolio-specific catalysts. growth rate. The retail sector is expected to continue to Top picks are CDL HT, A-REIT, CMT, MAGIC and FCOT. remain resilient despite an increasing tough operating climate for retailers faced with increasing labour cost, shortage Singapore Developers – Diversifying out of Singapore impacting productivity. In addition, e-commerce remains a rising threat for retailers who are unable to establish an Our call on the developers is mainly due to valuations. Firstly, online presence. That said, retail REITs should remain stable we view current trading levels of (P/Bk NAV of 0.83 and 0.70x given that they (i) own only c.34% of total retail space in P/RNAV) as attractive given that developers trade at close to Singapore and (ii) actively manage their properties which see historical – 0.5 SD level. While we expect further downside to high recurring spending and traffic. Singapore residential prices in 2015, we note that developers have in general (i) locked in a substantially portion of sales in Supply concerns for industrial but business park subsector residential projects in Singapore residential and have been fundamental improving. We remain cautious on the industrial selective in land-banking strategies, (ii) diversified their sector due to increased downside risks on the back of exposures away from Singapore and have been focused on heightened supply completion schedule in 2015/2016. This building up their recurring income base. We see catalysts will spike vacancy rates to >10% and spot rents are projected coming from a potential loosening of selective property to dip by c.5% per annum over 2015/2016. Industrial REITs measures when further price declines occur and value will see flattening or potentially negative rental reversion rates unlocking events through asset divestments over the year. over the next two years. That said, we are positive on the Our pick is CAPL. business park subsector as we see demand returning due to a lack of office supply in the CBD. Risks 1. Earlier than expected rise in interest rates negatively Residential prices projected to drop 15% over 2015/16. With impacting on earnings prices only down c.3.9% from the peak, we believe that the 2. External shocks impacting on demand/supply fundamentals. residential sector remains on an early part of a down-cycle.
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Industry Focus
Singapore Property
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
250.0 12.0% 40,000 Surplus/Deficit 250.0 (units) Surplus Index (%) 30,000 10.0% 200.0 200.0 20,000 8.0% 10,000 150.0 150.0 ‐ 6.0% 100.0 (10,000) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 100.0 4.0% (20,000) 50.0 Property Price Index (LHS) 2.0% (30,000) 50.0 Vacancy Rate (RHS)
(40,000) ‐ 0.0% Change in Dwellings URA PPI (RHS) 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 (50,000) ‐ Key Assertions Risks New supply completions spiking in 2015/16 adds pressure • Slower than projected decline in prices resulting in a delayed to rentals and vacancy rates relaxation of cooling measures Widening spread between HDB resale and private property • External shock causing a downturn in the Singapore prices affecting upgrader affordability economy and a significant decline in the property market Residential market still early in the down-cycle; project prices to dip 12-15% over 2015-2016
Retail Outlook - Neutral Rental reversions to moderate as RSI declines Overseas travel causing a slowdown in retail spend Re versions (%) 30,000 18.0% 40% RSI Growth RSI ex-motor vehicles (LHS) 16 S$'m Residents' Expenditure Abroad % of PCE over 3 years ago CMT portfolio reversions (%) RHS Residents' Expenditure Abroad as % of PCE 35% 14 17.5% 25,000 Re tail sales 30% 17.0% growth vs 3 years 12 p r ior: worse than 20,000 25% 16.5% during GFC 10
20% 15,000 16.0% 8 15% 15.5% 6 10,000 10% 15.0% 4 5% 5,000 14.5% 0% 2 0 14.0% -5% 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Key Assertions Risks Muted retail sales outlook poses a risk to retailers’ • Increased penetration of e-commerce causing decline in occupancy costs and rental reversions retail sales • Consolidation among retailers to intensify in 2015 amid • Lower fuel prices drives growth in disposal income and retail rising labour costs and labour shortage sales • Retail REITs will continue to remain defensive, given well- located assets, good management track record and staggered WALE
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Industry Focus Singapore Property
Office Outlook - Positive Historical net supply and absorption rate City Fringe Rents to rise faster as CBD crunch worsens 12.00 S $ psf pm 4,000 '000 sqft
10.00 3,000 8.00 2,000 Rent differential of up to 60% for 6.00 c e ntral area vs city f ringe offices 1,000 4.00
0 2.00
0.00 -1,000 -99 -10 -95 -06 Net Supply: Private Sector -96 -07 r-00 r-11 y y p p g g p p Net absorption: Private Sector Jul-97 Jul-08 Jan-03 Jan-14 Jan-92 Jun-98 Jun-09 Feb-02 Oct-05 Feb-13 Feb-91 Oct-94 A A Se Se Dec-03 Dec-92 Nov-04 Nov-93 Au Au Mar-01 Mar-12 Mar-90 -2,000 Ma Ma Median Rent psf: Office Central Area Median Rent psf: Office Fringe Area
Key Assertions Risks • Office rents outperformed the market in 2014 on the back • Earlier completion of new office supply of limited supply • Shadow space from further contraction in demand from • Displacement demand from Equity Plaza and 2HR should the financial services sector bolster rents in 2015 • Office REITs could enjoy stronger-than-expected reversions in 2015 as new supply only anticipated to complete in 2H16
Industrial Outlook – Negative Industry facing 14% expansion in industrial supply Rental Reversions to turn negative
3,000 50% Sqm 3-year average 2.4 m sqm Negative reversion
2,500 40%
2,000 30% 5-year average 1.1m sqm 1,500 20% 1,000 10% 500 0% - 2009 2010 2011 2012 2013 2014F 2015F 2016F
-10% Business Park Warehouse Factory Demand Supply -20%
Key Assertions Risks Market rents to moderate 5% p.a. due to concentration of Weaker than-expected Singapore economy resulting in new industrial supply completions in 2014-2016 further-than-expected declines in rents Business Park space to surprise on the upside, given lack of Shadow space in the single-user factory space resulting in office space in the CBD increased competition within multi-user factory space Industrial REITs rental reversions to flatten out or turn negative over 2015-2016
Source: DBS Bank
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Industry Focus
Singapore Property
Hospitality Outlook - Positive Downturn in Chinese tourists in 2014 but recovery from 2015 Bounce in occupancy and ADR in 2015 y-o-y growth S$ 90% 300 40% 34.7% 88% 28.9% 250 30% 25.0% 86% 84% 200 20% 15.0% 12.5% 82% 11.6% 10.0% 80% 150 10% 78% 100 0% 76% 74% 50 -10% 72% -3.2% 70% 0 -20% -13.2%
-30% -25.0% -27.8% -40% Occupancy (LHS) ADR (RHS)
Key Assertions Risks Recovery in Chinese tourists and overall tourist arrivals to Slower-than-expected rebound in Chinese tourist arrivals catalyse performance in 2015 resulting in lower-than-projected recovery in RevPAR RevPAR to turn positive despite supply completions, projecting a 3.6% growth in 2015
Source: DBS Bank
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Industry Focus Singapore Property
3. Peer Comparisons
Singapore REITs Peer Comparisons REIT FYE Price Rec Target Total Mkt DPU Yield(%) DPU P/Bk 6/1/15 Price Return Cap Growth FY14 FY15 FY16 FY14/ FY15/ FY16/ (S$) (%) S$'m /15F /16F /17F 15F 16F 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
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Industry Focus
Singapore Property
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
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Industry Focus Singapore Property
4. Singapore REITs – Navigating tougher times
Key Assertions Retail REITs delivered strongest growth in distributions Timing of rate hikes a sector overhang but not the sole determinant of price performance Hospitality 5% Modest growth prospects and weakening Industrial 3% SGDUSD to impact flows into sector MAS consultation paper and expiring tax Retail 10% incentives key datapoints in 1H15 Picks CDL HT/A-REIT/CMT/MAGIC/FCOT Office/Commercial 4%
Year of outperfomance; compression in bond yields brought S-REITs 5% yield spreads up to 4.0%. The Singapore REITs (S-REITs) came 0% 2% 4% 6% 8% 10% 12% out winners in 2014, rising by c.9% YTD, higher than Straits Source: Companies, DBS Bank Times Index (FSSTI) and Property Developers (FSTREH) which increased by a lower 4-5%. We believe that the sector’s Gearing to increase to c.35% in 2015; 75% of interest outperformance stems from continued interest from investors obligations hedged. S-REIT’s average gearing remains at the due to the sector’s attractive yield of c.6.2% while 10-year 32-35% range over FY14F-15F, which is likely to remain stable yields compressed to c. 2.2% from (spread of 4.0% against the as most S-REIT managers have indicated that they see a 35- 10-year bond of c.2.2%). We have also seen demand from 40% level as being optimal at the current market cycle. We new investors in the S-REIT space, attracted by the sector’s understand that 75% of interest obligations in FY15/16F have strong earnings visibility and consistent payouts. been hedged into fixed rates (either through fixed rate MTNs, swaps, etc). S-REIT outperformance the STI and Developers 800 Index Pt Index Pt 3500 S-REIT average gearing
780 3400 36.0% 34.8% 760 3300 35.0% 34.5%
740 3200 34.0% 32.8% 720 3100 33.0% 32.6% 32.3% 700 3000 32.0% Singapore REITs 680 2900 31.0% 30.6% Singapore Developers Straits Times Index (RHS) 660 2800 30.0% 640 2700 29.0% 2/1/2014 2/4/2014 2/7/2014 2/10/2014 28.0% 2010 2011 2012 2013 2014F 2015F Source: Bloomberg Finance L.P., DBS Bank Source: Bloomberg Finance L.P., Companies, DBS Bank
The S-REITs delivered a consistent set of results over the past Well Spread out Debt Maturity Profile year as rental reversions remained positive, and portfolio 2014 2015 2% 13% 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- >2017 47% 2016 13% y-o-y. 21%
2017 17% Source: Companies, DBS Bank
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Industry Focus
Singapore Property
Higher cost of funds in 2015. The short end of the curve (3m Key Issues in 2015 SIBOR and 2-Year SIBOR) on which typical lending rates are Heading into 2015, we believe that with the market casting an expected to see marginal hikes of 16-74bps over 2015. While eye on rate hikes on the horizon, we believe that S-REITs' most of the increases are coming from 2H15, we believe that outperformance in 2014 is not likely to be repeated. Our there is still a small window for S-REITs to continue to renew strategy is to stick to S-REITs that offer higher growth expiring loans early before feeling the impact of higher rates prospects or absolute yields that we believe will compensate on their numbers. In addition, with a high hedge ratio of 75% for the risk of higher interest costs. Key themes in 2015 are: as a guard against higher interest rates, impact of an earlier- than-expected increase is likely to be muted.
A. Overhang in performance as rate hike looms S-REITs – Rising rates and overhang for the sector but not Upward bias for 10-year US Treasury despite divergent totally out. Rising interest rates are generally negative for yield monetary policies globally. Looking forward into 2015, instruments like S-REITs as opportunity costs (measured as 10- differing global growth prospects in the developed economies year government bond yields) rise and yield spreads compress. of Japan, Europe and US will likely mean that the timing of rate Based on our estimates, S-REITs currently offer a FY15F yield of hikes is likely to be uncertain again, although DBS Group’s 6.2% or a yield spread of close to 4.0% might look attractive view is for the US Federal Reserve (Fed) to contemplate a first, (between its mean and -1SD of its historical range), but is moderate hike from 4Q15. That said, current 10-year US expected to approach 3.55% on a forward basis, which is in Treasury yields (UST) of 2.2% seem low in a post-taper line with its historical mean, implying prices are fair. environment and should see an upward bias to 3.10% by 4Q15, implying a 90-bps increase. S-REITs yield spread to compress towards mean by 4Q15
6.0% Over that period, the yield curve is expected to flatten with the 5.5% shorter end of the yield curve (3m Libor and 2Y Libor) rising 5.0% faster than longer duration yields. Likewise, the SGD yields are 4.5% 4.0% also expected to rise in tandem and 10-year yields are expected 3.5% to rise by c.39bps over the course of the year. 3.0% 2.5% 2.0% DBS Group forecasts interest rates to increase steadily 1.5% over 2015 1.0% USA 10th Dec’14 4Q15 Changes (%) Jan-11 Jan-12 Jan-13 Jan-14 1Q15 3m Libor 0.24% 0.40% 0.16% S-REIT Yield Spread Average (2006-2014) -1 SD +1 SD Source: Bloomberg Finance L.P., companies, DBS Bank 2Y 0.61% 1.60% 0.99% 10Y 2.21% 3.10% 0.89% Losing allure of a strengthening USDSGD exchange rate. Since 10Y-2Y 1.60% 1.50% -0.10% 2008-2014, following three rounds of quantitative easing by Singapore 10th Dec’14 4Q15 Changes (%) the Fed, we saw a greater negative correlation (-0.84x) 3m Sibor 0.44% 0.60% 0.16% between a strengthening SGDUSD rate and the FSTREI index, 2Y 0.61% 1.35% 0.74% implying the carry trade that has boosted returns for holding S- 10Y 2.26% 2.65% 0.39% REITs over 2010-2014. With this trend expected to reverse in 10Y-2Y 1.65% 1.30% -0.35% 2015, we see less of a pull for S-REITs from 2015 onwards. Source: DBS Bank
FSTREI index vs SGDUSD exchange rate Yield Curve to “flatten” as short rates rise faster than the 1,200 Index Pt USDSGD exchange 1.8 longer-end rates
1.7 3.00% 1,000 2.65% FSTREI Index 1.6 2.50% 800 1.5 2.00% 2.26% 600 1.4 1.50% 1.35% USDSGD Rate 1.3 1.00% 400 0.60% 1.2 0.61% 10-Dec-14 0.50% 0.44% 200 4Q15 Correlation of -0.44 Correlation of -0.84 1.1 0.00% 3m SIBOR 2Y 10Y - 1 Source: Bloomberg Finance L.P., DBS Bank
Source: Bloomberg Finance L.P., DBS Bank
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Industry Focus Singapore Property
Mean reversion a target for S-REITs. While S-REITs are trading S-REIT Performance is closely linked to growth prospects at FY15F yield spreads of 4.0% compared to the current 10- 1100 20.0% year bond rate of 2.2%. The strong share price performance in 1000 2014 resulted in the current yield spread at a more compressed 15.0% level than the average 2.4%-2.5% for most of 2014. With, 900 10.0% expected further hikes in Singapore 10-year bond rates to 800 2.84% by middle of 2015 are seen to bring spreads closer. 700 5.0% Based on this assumption, yield spreads are expected to 600 0.0% compress further towards 3.4-3.7%, which will place it in line 500 with the sector long term mean of c. 3.5%. -5.0% 400
300 -10.0% As such, with S-REITs facing a modest 5.3% DPU growth Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 outlook coupled with further upside risks to the long bond FSTREI Index S-REIT Growth Rate y-o-y yields, we believe that mean reversion is our medium-term Source: Bloomberg Finance L.P., companies, DBS Bank 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.
Historical S-REIT yields and S-REIT yield spreads (2005-current) S-REIT Yield 10 Year bond S-REIT Yields Period Years Spreads Comments (%) (%) (%)
2005 2.9% 5.0% 2.1% 2006-2008 was a period of high growth
“High Growth” 2006 3.4% 5.0% 1.6% for the S-REITs where average distribution growth was c.13% over 2006-2008. Key 2007 2.9% 4.2% 1.3% Catalysts were acquisitions
“Aberration in 2008 2.8% 7.9% 5.1% Yield spread expanded to >5.1% due to valuations due to financial crisis the GFC” 2009 2.4% 9.4% 7.0%
2010 2.4% 6.3% 3.9% Post-global financial crisis period, the 2011 2.1% 6.6% 4.5% sector saw yield compression in 2012- “Liquidity driven 2012 1.5% 6.2% 4.8% 2013 before the Fed hinted of rate hikes recovery” 2013 1.8% 5.5% 3.8% in mid-2013 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
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Industry Focus
Singapore Property
B. Growth opportunities Office/commercial sector offers the highest growth prospects over next 3 years
Slight pick-up in DPU growth for FY15/16 Net 3 year DPU Moving into FY15/16, we expect a slight pick-up in overall S- CAGR (2014-2018) -0.8% REIT DPU growth of 5.3% from the projected 2.8% in Hospitality 2.6% 0.9% 2.7% FY14/15. This is largely driven by improvements in the -0.4% Industrial 2.3% 1.5% 3.4% Office/Commercial, Industrial and Hospitality sectors. This is -0.3% partially offset by lower contribution from the retail sector. Singapore retail 2.0% 0.0% 1.7% -0.7% Retail 3.5% 0.1% 2.8% Better performance from the Office/Commercial sectors is -1.3% mainly organically driven as FCOT (switch from master lease at Office/Commercial 4.1% 1.6% 4.4% -0.8% Alexandra Technopark), Suntec (benefits recent AEI) and S-REITs 3.1% 1.1% 3.4% MAGIC (strong tenant sales) are able to generate healthy rental -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% reversions. Meanwhile, the hospitality sector should benefit from a recovery in tourist arrivals into Singapore with ART Organic Inorganic Equity Dilution boosted by recently announced acquisitions. For the industrial Source: Companies, DBS Bank sector, despite the supply headwinds, acquisitions should underpin the DPU growth outlook. In contrast, the retail sector Jump in M&A activities in 2014 should be buffeted by slowing tenant sales. There has been an increase in M&A activities by S-REITs in 2014. This was led by the hospitality, retail and FY15/16F DPU growth Office/Commercial REITs. Notable transactions include the highly anticipated acquisition of 1/3 interest in MBFC Tower 3 Hospitality 6.1% by K-REIT for S$1.2bn, A-REIT’s purchase of Aperia (a mixed use development) for S$458m and OUEHT’s proposed Industrial 5.8% purchase of Crown Plaza Changi and extension for S$495m.
Singapore retail 1.7% Increase in M&A activities lead hospitality and retail sectors Retail 3.2% Total Office/Commercial 5.5%
Healthcare S-REITs 5.3% Hospitality 2014 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 2013 Source: Various REITs, DBS Bank Industrial 2012 Retail Decent growth over next three years Over the next three years, we still expect decent growth for S- Office/Commercial S$m REITs, with a projected 3.4% p.a. increase in DPU. Organic 0 1,000 2,000 3,000 4,000 5,000 growth of 3.1% p.a. is supplemented by 1.1% p.a. boost from Source: Various REITs, DBS Bank acquisitions. This is partially diluted by issuance of shares for management fees. In terms of country allocation, Singapore continues to be the main investment market with c.S$2.9bn worth of properties The sector with the best growth prospects is the purchased in 2014. There has also been a noticeable increase Office/Commercial sector, which has the highest organic in interest in Japanese properties with S$734m invested growth outlook of 4.1% p.a. with 1.6% p.a. boost from the compared to S$37m in 2013. This is on the back of contribution of acquisitions/new developments. In comparison, expectations of further cap compression as the Japanese the industrial and Singapore retail sectors which face government pursues reflationary policies or “Abenomics”. headwinds in the form of excess supply and slowing retail sales, should deliver the slowest organic growth at 2.3% and 2% respectively.
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Industry Focus Singapore Property
Singapore remains the core investment destination Sponsor continues to be valuable source of acquisition pipeline
2013 2014 100% 7% 6% 90% 3% Singapore 9% Singapore 80% 42% China 2% China 49% 70% 45% Japan Japan 68% 28% 16% 60% Australia Australia 63% 50% Indonesia Indonesia 16% 4% 40% 1% Others Others 30% 58% 51% 20% 32% Source: Various REITs, DBS Bank 10% 0% Meanwhile, sponsor-related properties remain an important 2012 2013 2014 source of acquisition pipeline for S-REITs, contributing about Sponsor/Strategic partner 3rd party 58% of total acquisitions by value in 2014. Source: Various REITs, DBS Bank
Acquisitions by S-REITs in 2014 REIT Property Country Sector Value (S$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 Japan Healthcare 37 3rd Party for elderly 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
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Industry Focus
Singapore Property
Overseas acquisitions a potential driver for 2015 monetary policy, this may be a catalyst for greater interest for S-REITs. Finally, the CapitaLand group of REITs, may be With slowing growth rates and limited investment presented with greater investment opportunities, as opportunities in Singapore, we expect S-REITs to focus their CapitaLand, post the acquisition of CapitaMalls Asia, may look efforts on acquisitions in overseas markets, especially Japan to recycle assets of its balance sheet. and Australia on the back of the declining JPY and AUD. Furthermore, Australia may come into focus for the Fraser Well place to fund acquisitions Centerpoint Limited (FCL) group of REITs, as FCL may look to monetize some of its Australand properties. For ART, Australia With a majority of S-REITs’ gearing around the 30-35% level, could also be a growing investment market on the back of its they have sufficient debt headroom available to fund sponsor CapitaLand inking a deal to acquire a 20% interest in acquisitions. Nevertheless, with prospects of rising interest Quest Australia’s serviced apartment provider and investing up rates, the ability to complete yield accretive acquisition will to A$500m new properties that Quest will secure for its become more challenging. franchise network. In addition, with China loosening its
S-REITs gearing headroom and sponsor pipeline REIT Gearing end Headroom Headroom Sponsor Potential Pipeline Remarks FY14/15F 40% 45% Office CCT 32% 962 1,721 Capitaland Remaining stake in Contingent on CapitaGreen performance of CapitaGreen FCOT 37% 101 281 Frasers Valley Point/Alexandra High likelihood for Centrepoint Point/Cecil Street Office Australand's properties Land property/Australand 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 Possible acquisition of Mall, Ion Orchard Westgate CRT 52% n/a n/a Croesus Mallage Saga, Forecast Kyoto No immediate plans to Group, Daiwa Kawaramachi, China properties purchase Chinese House, properties Marubeni FCT 29% 450 720 Frasers Waterway Point, Northpoint Pipeline assets under Centrepoint City construction Limited 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 Mapletree Business City (MBC) MBC 2 under construction Investments 1&2 MAGIC 38% 204 672 Mapletree Kowloon East Office Kowloon East Office under Investments construction, MAGIC looking at opportunities in China SGREIT 29% 562 885 YTL Focused on existing assets Corporation at the moment Suntec 36% 607 1,429 Cheung Kong Holdings/ARA No acquisitions expected Source: Various REITs, DBS Bank
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Industry Focus Singapore Property
S-REITs gearing headroom and sponsor pipeline (cont’d) REIT Gearing end Headroom Headroom Sponsor Potential Pipeline Remarks FY14/15F 40% 45% Industrial a-itrust 24% 297 426 Ascendas Cybervale Chennai Subject to share price Group performance and stabilisation of INR A-REIT 34% 795 1,582 Ascendas Industrial assets Acquisitions likely to be Group from sponsor (business park properties in Singapore).
Cache 32% 154 270 CWT/ARA Ramp up warehouses from Likely to acquire one asset CWT in 2015.
CREIT 33% 153 286 N/A Exploring opportunities in Australia, Japan and Malaysia.
MINT 35% 303 631 Mapletree Tai Seng development Under development and Group not likely to be acquired in the near term.
MLT 36% 278 714 Mapletree Properties in Hong Kong, China High likelihood of M&A to Group supplement growth, given headwinds in Singapore SBREIT 35% 84 187 Soilbuild Group Various industrial properties Holdings Hospitality ASCHT 36% 104 252 Ascendas Asia Pacific properties Potential disposal of Group/Accor Pullman Cairns to provide additional financial flexibility.
ART 36% 275 660 Ascott Group Serviced apartments in China, Potential expansion into Quest apartments in Australia China, Japan and Australia.
CDREIT 31% 346 597 City St Regis, South Beach project Lower gearing provides Developments firepower for acquisitions.
FEHT 31% 374 639 Far East 7 hotels & serviced residences Assets not ready to be Organisation injected.
FHT 42% n/a 106 Frasers 18 hotels and serviced Delivery of IPO prospectus Centrepoint residences forecasts before Limited and considering acquisitions. TCC Group 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, Low likelihood, given Shanghai current share price Summit, Mr Lim Chap Huat Source: Various REITs, DBS Bank
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Industry Focus
Singapore Property
C. Reforms and Key tax issues to address Assuming the proposals are passed, we should result in (i) a reduction in fees; and (ii) greater transparency and alignment Proposed new REIT enhancements from the MAS Consultation between REITs and their unitholders. This should increase Paper to be implemented by end 2015. The Monetary confidence and attractiveness of REITs to investors and Authority of Singapore (MAS) released a consultation paper potentially result in lower cost of capital for S-REITs. A strong back in Oct’14 highlighting potential tweaks to the current and functioning REIT sector is also a long term positive for regulatory regime governing REITs and REIT managers. Key sponsor/property developers who have another avenue to proposals include: (i) improving the corporate governance and recycle assets efficiently. disclosures for REIT managers; (ii) minimizing instances of “conflicts of interests” between REIT managers and investors Sunset clauses for tax incentives expire in 31st Mar 2015. We through refining REIT managers’ compensation methodologies; note that tax incentives that were extended back in 2010 will and (iii) operational tweaks like having REITs adhere to a higher expire come 31st Mar’15, which is a key uncertainty for S-REITs leverage limit of 45% (vs 35% currently) and eliminating the going forward. These incentives are (i) tax holidays for 60% cap on REITs with a credit limit. In addition, MAS overseas-sourced income; (ii) stamp duty and goods and proposes to raise the development limit for REITs to 25% from services tax (GST) remission; and (iii) concessionary income tax the current 10% of total assets. These measures are likely to be rate of 10% for non-resident non-individual investors. implemented from 1st Jan 2016 onwards. Summary of Sunset Clauses Summary of Key Proposals Clauses Potential Impact if Areas of interest Main proposals not renewed Corporate governance Increased independence (e.g. at least half 1. Concessionary income tax rate of 10% Lower returns for of board to be independent directors) and transparency (e.g. disclosure of for non-residential non-individual investors remuneration). investors.
Refining alignment of Pegging fees to long-term unitholders 2. Stamp Duty and GST remission on Higher acquisition incentives interests including linking performance fee to NAV or DPU/unit rather than REIT's transfer of a Singapore immovable cost and lower yields gross revenues and acquisition/divestment property to a REIT. fees determined on a cost recovery basis. Removing link between fees of directors of REIT manager to shares in Sponsor and 3. Subject to satisfying certain conditions S-REITs might have prohibiting remuneration of executive and approval from the authorities, S- to incur restructuring officers to revenue of the REIT. REITs currently enjoy tax exemption for cost to maintain its
foreign-sourced income. tax efficiency or incur Operational flexibility Moving to single tier gearing limit of 45% regardless of whether credit rating is tax leakages going obtained. Change from 35% gearing limit forward without a credit rating and 60% with a Source: Bloomberg Finance L.P., DBS Bank credit rating.
Additional development limit for REITs to Uncertainty for S-REITs. The impact on distributions and 25% from current 10% of total assets growth for S-REITs for the two clauses is uncertain at this (additional 15% for assets held for 3 years or more). moment, although we believe that it will make business sense to do so. These tax incentives have been a popular measure as REIT structuring Increased clarity of income support Singapore’s clear regulatory and tax frameworks are key arrangements and greater disclosure of attractions that made Singapore one of the leading REIT hubs operating expenditure, WALE and debt maturity profile. in the Asia Pacific (ex Japan) region. In addition, Singapore needs to remain ahead, given that regional markets like India, Source: MAS, DBS Bank Thailand and China have been fine-tuning and instituting their Positive catalyst for the sector; lower cost of capital. In our own REIT regulations to draw in capital investments. report, “Strengthening REIT regulations” dated 10th Oct’14, we remain positive that these proposed better governance and confidence for investors in SREITs in general.
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Industry Focus Singapore Property
5. Developers – Awaiting re-rating catalysts
Key Assertions 7.1% from the peak. While government measures have Expect 12-15% drop in price over 2015-2016; worked somewhat in halting the rise in prices and curbing expectations of government policy loosening speculation, recently, there have been calls by developers to unlikely to happen unless an accelerated price the government to relax specific policy measures that are drop deemed more cyclical. Developers substantially de-risked residential exposure and sought to diversify and build up We believe that Singapore's residential market has moved recurring income beyond further tightening but expectations of policy Top pick: CAPL loosening might not happen anytime soon. This is because, we believe that the current price drop, measured by the PPI, is Developers underperformed the S-REITs in 2014. While still fairly moderate and the current low interest rate Singapore Property Developers (measured by the FSTREH environment will mean that the government is likely to take a index) returned a positive c.4% in 2014, it still more cautious stance towards any policy loosening at this underperformed both the STI and S-REITs which were up by juncture. Recently signs from the government also suggest c.5% and c.9% respectively. The lacklustre performance for that the property measures are here to stay, subject to a the developers stocks in 2014 can be attributable to a lack of "meaningful drop” in prices. That said, we believe that the catalysts due to a stagnant property market. government stands fast to act when it happens or if an external shock has a disproportionate impact on prices. Investors have continued to prefer to stay in the S-REIT space due to their relative attractiveness backed by strong income Attractive valuations. In our analysis, we have removed Global stability and high yield/yield spreads of c.6.2%/4.0%, which Logistics Properties (GLP) as the stock trades at a premium we believe are preferred characteristics in times of due to its niche exposure in logistics real estate. Since the uncertainty. start of the policy tightening cycle over two years ago, we have seen the Singapore developers (FSTREH) What are key themes for 2015? underperforming the S-REITs as the market attempted to digest the impact of policies. As such, the developers' A.Policy relaxation a catalyst 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 Relaxation of tight Government policy measures a catalyst for GLP). This is between its -1SD and historical mean. On an the sector, but will they or will they not? After multiple RNAV perspective, the sector is trading at a 30% discount rounds of cooling measures, the Singapore private residential and is close to its historical -1SD level. home prices, measured by the PPI, have moderated by c.3.9%, while HDB resale prices have dropped by a wider
Developers returned 4% in 2014; underperforming Developers trading at close to -1SD -to-RNAV the STI and S-REITs 1.80 790 1.60 P/RANV Mean +1 SD ‐1 SD 770 1.40 750 1.20 1.00 730
0.80 710 0.60 Singapore REITs 690 0.40 Singapore Developers 0.20 670 0.00 650 2/1/2014 2/4/2014 2/7/2014 2/10/2014 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: URA, DBS Bank ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar
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Industry Focus
Singapore Property
Developers - stay nimble. We view current valuations as property developers typically stabilised at c.0.90-0.93x after attractive (P/Bk NAV of 0.83 and 0.70x P/RNAV) and given the troughs in 4Q98/1Q04 and 3Q09. that developers trade at close to historical -0.5SD level. We believe that current levels have already priced in the negatives However, we note that developer prices are quick to react on from a weakening market outlook. the upside once the property market turns around. While we do not expect this to happen in 2015, we believe that Based on historical price performance, we note that share valuations are attractive, given that developers' current P/BK price for developers reacts quickly to expectations of NAV of 0.83x is already trading at a discount to historical declines/rises in the physical property price index. In previous stabilized levels which average c.0.90-0.93x. As such, we down-cycles in 1996, 2000 and 2009, the PPI declined believe that there is a buffer against any further expected between 20-45% from its respective peaks. Property negative data points in the residential market. 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
Singapore property market cycles and developers' performance Private Residential Property Index Developers (P/Bk NAV pefromance) (PPI) Periods Peak Trough Number of % Chg (ppt) (ppt) quarters to Average P/Bk Trough % decline from trough NAV post (x) Peak P/Bk declines NAV 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) 2.50 250.0 2.50 Property Price Index Developer P/Bk NAV
2.00 200.0 2.00
1.50 150.0 1.50
1.00 100.0 1.00
0.50 50.0 0.50
‐ ‐ ‐ 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan P/Bk NAV Mean ‐ 1 SD +1 SD Source: URA, DBS Bank Source: URA, DBS Bank
Page 18
Industry Focus Singapore Property
Asset Divestments and Increased Recurring income base Singapore through (i) recycling assets in Singapore through a newly formed investment vehicle, and (ii) acquiring properties Quick asset-turn strategy; focus on recurring income and in Japan, UK for development. The group continues to look overseas. Over the years, developers have raked in strong outside for opportunities in the new year. Frasers Centerpoint sales in their residential projects, maintained a quick-asset Limited (FCL) delisted Australia-based Australand and now turn strategy in their project launches amidst tightening derives a substantial portion of its revenues from Australia. regulatory environments. Most have been selective in their Developers like Hobee and UOL Group have also been land-banking and have focused on clearing unsold inventories investing in UK in recent years, in the chase for higher selectively. As such, developers’ average debt-to-equity ratio returns. Keppel Land has also recycled close to S$1.0bn worth stands at 33% and is estimated to continue improving over of properties in 2014 and invested in development the next few years as its uncompleted projects receive TOP. opportunities in Indonesia/Vietnam and Indonesia.
We also note that most developers have substantially “de- Looking ahead, with limited land-banking opportunities in risked” their Singapore residential exposure as the total Singapore, we see developers continuing to venture overseas number of unsold inventory is only a small proportion of its for opportunities to further diversify earnings and boost total exposure in the Singapore residential market. That said, returns on equity (ROE). based on our estimates, Singapore residential comprises of 5% -30% of total GAVs. This means that an expected drop in In addition, we believe that developers are likely to continue residential prices is unlikely to dent RNAVs significantly. With looking at asset-recycling strategies – divesting stabilised valuations already at 30% discount to P/RNAV, we believe assets and redeploying proceeds overseas. We believe that that negatives are already priced in. CapitaLand Limited (CAPL) and Global Logistics Properties (GLP) are most likely to divest properties to their existing REITs In addition, property developers see better returns overseas in order to boost ROEs. For CAPL, completed and stabilised and have been venturing and diversifying their exposures properties like Westgate Mall in Singapore and various malls beyond Singapore, with key investment markets of London, in China might be ripe for recycling into their listed REITs. For Australia, Japan and China. For example, we have seen the GLP, management has previously alluded to potentially likes of City Developments Limited (CDL), that has been pre- recycling c.US$500m worth of its Japan logistics properties dominantly focused in Singapore, diversifying away from into GLP J-REIT.
Developers exposure to Singapore residential (as % Developers Price-to-RNAV of RNAV) SG Resi SG Overseas others 30% CapitaLand 9% 25% 66% 20% City Dev 27% 52% 21% 10%
Fraser Centrept Ltd 7% 35% 58% 0%
-10% Ho Bee 15% 56% 29% -20% Wheelock 30% 39% 32% -30%
UOL Limited 5% 87% 8% -40%
-50% OUE Ltd 9% 56% 35% -60% Wing Tai (Jun 2014) 19% 20% 60% -70% Global Logistics Properties 0% 0% 100% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Disc to RNAV Mean +1 SD -1 SD Source: URA, DBS Bank
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Industry Focus
Singapore Property
6. Residential – Approaching a slippery slope
Key Assertions Rest of Central region (-4.0% YTD) and in the outside Central New supply completions spiking in 2015/16 region which dipped marginally by -1.3%. adds pressure to rentals and vacancy rates Widening spread between HDB resale and HDB resale market the worst hit. The HDB resale market index, private property prices affecting upgrader which has historically been the more resilient sub-segment of affordability the property market, is the worst hit this time round, mainly Residential market still early in the down-cycle; due to tighter financing regulations (total debt financing ratio project prices to dip 12-15% over 2015-2016 or TDSR) and selling restrictions. The index retraced back by 4.7% YTD 3Q14 (or 7.1% down from the peak) and is 2015 – Key Themes currently at 2012 levels.
With the private property market continuing to operate in a Primary transaction volumes collapsed by c.47% y-o-y as of tight financing and regulatory environment, we believe that 3Q14. Since the start of 2014, we have seen property cooling the market remains in the early part of the down-cycle. As measures starting to take its toll on buyers’ sentiment and YTD such, we think that a widely anticipated reversal in policy 3Q14 transaction volumes tumbled c.47% y-o-y to 5,940 units. measures is unlikely in the near term. Looking ahead, we Despite a c.18% y-o-y (or 765 units transacted) rebound in expect buyers’ sentiment to remain weak, which will have an Oct’14, this is short-lived as total primary sales volumes overhang on transaction volumes in 2015. With a slew of collapsed again in Nov’14 to 412 units. This means that total completions flooding the market over 2015-2016, we expect primary sales in 2014 was lower than 8,000 units for the year, vacancy rates to hike to 9%-10%, implying further pressure less than half the total number of transactions in 2014. This on rentals and prices. We forecasts volumes to dip to 8,000- will also represent one of the quietest years for primary 9,000 units in 2015 and price to dip by between 12-15% property transactions since 2005. over 2015-2016. Speculators out – Subsale volumes shrank as secondary Key themes for the residential market in 2015 are: market volumes fell 47% y-o-y. Secondary transaction volumes also declined significantly as expectations of softer A.Singapore property market in the early part of the market conditions combined with hefty seller stamp duties downturn (c.16%/12%/8%/4% of selling price if property is resold
within 1/2/3/4 years of purchase) kept speculators away. Home prices in 2014 softened for all sub-segments. 2014 Total transactions in the secondary market plunged c.47% y- was visibly a quieter year for property developers with prices o-y to c.4,043 units, with sub-sale transaction volumes now and volumes declining as tighter financing and regulatory only contributing c.10% of total secondary volumes (vs rules continued to bite following seven rounds of cooling c.15% over the past 10 years) and c.4% of total property measures over 2010-2013. The last of the lot, being the total transactions. debt servicing ratio (TDSR) framework, is seen as the most effective in halting the rise in prices of the Singapore property Strong developer balance sheet & interest rates helped keep market. Since the institution of the TDSR framework in mid- prices more sticky. We believe that property prices declining 2013, transaction volumes declined by a significant c.51% y- by a smaller degree compared to volume drops can be o-y in 2H14. Since then, we note that from the peak, prices attributable to (i) developers' strong balance sheets and have only dipped by only 3.9% till 3Q14, with the HDB resale holding power after locking in strong sales over 2010-2013; market dipping by a wider 7.1% margin. and (ii) current low borrowing rates, which allow investors and homeowners to prefer holding on to their units and not The overall Singapore property price index (PPI) was down by sell, given low opportunity costs. However, weak holders 3.0% since the start of the year. This represents a c.3.9% might be forced to sell if expectations that prices will decline in the index since the peak in 3Q13. However, continue to drop and that interest rates will rise over 2015- properties in the Core Central region (typically representing 2016. the upper-mid to high end of the residential market), was the
hardest hit, down -5.4% YTD, followed by properties in the
Page 20
Industry Focus Singapore Property
Residential transactions hit multi-year lows (down Volumes slumped and prices dipped from impact of 47% y-o-y as of 3Q14) TDSR 7,000 220 45,000 Units Index
40,000 6,000 215
35,000 5,000 210 30,000 4,000 25,000 205 3,000 20,000 200 15,000 2,000
10,000 1,000 195 5,000 - 190 - 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 9M14 Sales (Outside of Central Region) Sales (Rest of Central Region) Secondary Market Developer Primary Sales (EC) Developer Primary Sales Sales (Core Central Region) PPI Source: URA, DBS Bank
Subsale volumes as a % of total secondary Volumes in both the secondary and primary markets transactions falls to 10% slumped from impact of TDSR 12,000 30% 25,000 Units Post TDSR Units 10,000 25% 20,000 8,000 20%
6,000 15% 15,000
4,000 10% 10,000 2,000 5% 5,000 - 0%
-10
y - Jul-14 Jul-09 Jan-12 Jan-07 Jun-12 Jun-07 Oct-10 Feb-14 Feb-09 Apr-13 Sep-13 Apr-08 Sep-08 Dec-09 Nov-12 Nov-07 Mar-11 Mar-06 Aug-11 Aug-06 Ma 1H10 2H10 1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14 Sub-Sales Resale Transactions % Subsale as total Secondary volumes Secondary Primary (include EC) Source: URA, DBS Bank
Low lending rates helped to negate the fall in Developers have launched fewer units to clear existing property prices stock (sell-through rate >100% in 2014) 4.00 (%) 120% 25,000
3.50 100% 20,000 3.00 80% 2.50 15,000 60% 2.00 10,000
1.50 40%
5,000 1.00 3 Month SIBOR Rate 20% 0.50 0% - 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 9M14 - 01-Jan-06 01-Jan-08 01-Jan-10 01-Jan-12 01-Jan-14 Total Units Launched Total Units Sold Sell Through Rate (%) Source: URA, DBS Bank
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Industry Focus
Singapore Property
All Residential Price Index (y-o-y and q-o-q change) 240 20%
220 207.9 15% 200 180 10% 160 5% 140 120 0% 100 -5% 80 60 -10% 40 -15% 20 Change over previous quarter Residential Property Price Index 0 -20% 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 Source: URA, DBS Bank
Residential Price Index and HDB index 300.0
250.0
200.0
150.0 Moderating Trend
100.0
Property Price Index - All Property Price Index -Landed 50.0
Property Price Index - Non-Landed HDB Resale Price Index
- 1Q2006 1Q2007 1Q2008 1Q2009 1Q2010 1Q2011 1Q2012 1Q2013 1Q2014 Source: URA, DBS Bank
Residential Price Indices – sub-segments remain on a downtrend (q-o-q) Period All-Residential Landed Index Non-Landed Imdex HDB Index Core Central Rest of Central Outside Central Region Region 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 -3.0% -4.2% -3.3% -4.0% -1.3% -6.2% (YTD 3Q14) % Chg -3.9% -5.2% -5.8% -4.6% -2.3% -7.1% (Peak) 3Q14 207.9 233.1 201.3 184.1 214.8 192.4 (index) Source: URA, HDB, DBS Bank
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Industry Focus Singapore Property
A.1 Weakening affordability strong demand from the HDB upgraders for new private residential units (especially in the outside central area) is due Drivers for private housing have been suburban condos. HDB to (i) the strong run-up in HDB resale prices (HDB resale price upgraders have been major buyers of properties over the past index almost doubled over 2006-2012); and (ii) the hefty cash few years. Over the past few years, one of the key drivers for of valuations (COVs) that sellers can command above the increase in volumes had been increase in sales for private valuations of their HDB prices, which are paid upfront in cash. residential units in the Outside Central Region (OCR). Since These most likely will go into the downpayment for a new 2010, we have seen that the % contribution from sales in the house for the average aspiring HDB upgrader. OCR has increased from 46% of total transactions in 2010 to an average of 62-74% over 2011-2014. However, post the However, tough ongoing property cooling measures targeting TDSR framework, we have seen both transaction volumes and the cooling of HDB resale prices (removal of the COVs, % contribution from OCR falling to c.45-62%. limiting a new permanent resident ability to purchase a resale flat to three years after obtaining their PR status, loan The strong volumes seen in the OCR can be partly explained restrictions), and a ramp-up in new supply of new built-to- by the rise in buying activity from the HDB upgraders, as order (BTO) flats has kept demand away and resulted in HDB evidenced by the increase in composition of OCR home resale prices posting a decline of 7.1% since they peaked in buyers with a HDB address to 68-69% since 2011, vs. 52- 2Q13. Due to a widening gap between HDB resale prices and 60% in prior years. 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. Upgrader demand to be curtailed as HDB Resale prices dip and are likely to see further weakness. We believe that the
% sales in Outside Central Region (OCR) rising pre- % of HDB addresses from a large portion of total TDSR transactions 100% Units 25,000 100% 90% 90% 36% 32% 31% 80% 42% 41% 20,000 80% 40% 38% 46% 45% 48% 70% 59% 67% 62% 70% 74% 60% 15,000 60% 50% 30% 50% 40% 36% 34% 10,000 29% 36% 40% 36% 68% 69% 30% 30% 60% 63% 27% 52% 20% 24% 5,000 34% 18% 20% 23% 25% 25% 10% 19% 10% 9% 8% 10% 6% 0% - 0% 2007 2008 2009 2010 2011 2012 1H13 2H13 YTD14 2010 2011 2012 2013 YTD2014 Sales (Outside of Central Region) Sales (Rest of Central Region) Private HDB Sales (Core Central Region) Total New Sales (Private) Source: URA, DBS Bank Revised HDB resale transaction process w/o COV Resale price index vs OCR price index 250.0
200.0
150.0 Widening gap a rising 100.0 risk for prices
50.0 HDB Resale Price Index PPI (Non-landed) in Outside Central region -
Source: URA, DBS Bank
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Industry Focus
Singapore Property
A.2 Rising Interest rates remain an emerging risk buyers of a residential unit in the outside central region, this segment will most likely be most vulnerable to the risk of Low interest rates are boosting “affordability” interest rate increase in the medium term. currently. The current low interest rate environment remains a boon for buyers. With SIBOR rates continuing to remain low In addition, we note from a recent financial stability review at rock bottom rates of c.0.3-0.4% and an average interest 2014 by the Monetary Authority of Singapore (MAS) that the cost for loans at < 2.0%, we believe it continues to appear total ratio (TDSR) has effectively reduced leverage in the “affordable” for most buyers when taking up a mortgage system – borrowers with more than one mortgage has either for owner-occupation and/or investment. reduced from 15% of total loans as of 3Q14 – limiting the threat of overleveraging. While the recent TDSR framework has clamped down on over-leveraging, we believe that the risk of rising interest rates That said, we still believe that owners of multiple properties in the medium term poses a threat to buyers' affordability. are expected to be impacted more if interest rates rise, We estimate that a 1% rise in interest for a S$1m mortgage especially with market rental yields declining. YTD 3Q14 loan at 1.5% with a 30-year tenure is c.S$500/mth. This residential rental index have declined by 2% from the peak to increase is substantial in our view as it will mean a 2.1- to c.3.0% currently, and we expect further pressure when new 6.3-ppt increase in interest obligations,. though the impact is home competition spikes further over 2015-2016 and likely to be felt more for households at HDB 4-room and 5- vacancy levels inch up towards c.9-10%. room/executive flats. As these households are most likely
Low lending rates helped to negate the fall in A S$1m mortgage 1-ppt hike in interest rates will property prices increase interest costs by 2.1-6.3ppts 4.00 (%) % of monthly 60% household % incresae in interest 3.50 income obligations 3.00 50% 6.3% % of monthly income spent on mortgage 2.50 40% 2.00 4.5% 30% 1.50 43% 20% 2.6% 1.00 3 Month SIBOR Rate 31% 2.1% 0.50 10% 18% 14% - 01-Jan-06 01-Jan-08 01-Jan-10 01-Jan-12 01-Jan-14 0% HDB 4 Room HDB 5 Room & Condo Landed Source: URA, HDB, DBS Bank Executive
Rental Index weakening since 1Q14 Rental Yield decline precludes a drop in prices 200.0 20.0 Index Ppt Chg 220.0 4.5% 180.0 Index 15.0 160.0 200.0 4.0% 140.0 10.0
120.0 180.0 3.5% 5.0 100.0 160.0 3.0% - 80.0
60.0 (5.0) 140.0 2.5%
40.0 (10.0) 120.0 2.0% 20.0
- (15.0) 100.0 1.5% 1Q2004 3Q2005 1Q2007 3Q2008 1Q2010 3Q2011 1Q2013 3Q2014 1Q2004 1Q2006 1Q2008 1Q2010 1Q2012 1Q2014 QoQ Change (ppt) - RHS Rental Index (Non-Landed) - LHS Property Price Index Rental Yields Source: URA, HDB, DBS Bank
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Industry Focus Singapore Property
B. Supply completions to weigh down on prices Looking ahead, with a projected slower population growth of Flood of supply completions to spike in 2015-2016. According 1.3% (due to tighter immigration and foreign labour policies) to URA, total annual private property completions over 2015- and assuming an average household size of c.3.5 persons, we 2017 are estimated to be c.20,500 units per annum, implying a project that average annual demand will be c.17,000 per CAGR of 6.2%. This is close to an average of c.3.5% growth annum (made up to 7,800 new units from residents and the over the past decade. We note that 2016 will see a high of remaining 9,200 from foreign demand). 23,456 units being completed and entering the market. Supply growth to outweigh demand growth; vacancy rates to In addition, we estimate a further c.100,000 (or 21,000 units increase to c.9-10%. We believe that the Singapore per annum) new built-to-order (BTO) HDB flats currently under residential market faces an oversupply situation, as a construction and will complete progressively over the next consequence of (i) slowing population growth; and (ii) a three years. However, we believe these mainly cater to self- ramp-up in supply completions from 2015 onwards, which ownership and should not be competing with other private will result in a surplus in residential units. Based on our residential unit owners who might be looking for tenants. estimates, there will be a net surplus of c.25,000 new residential units from 2016 onwards which will more than Singapore residential market turning into a “surplus” double to 50,000 units in 2017. situation from 2015 onwards Assuming that (i) new HDB BTO units are built purely for Property market to turn into an over-supply situation. We owner occupation, and (ii) significant numbers of private believe that fundamental demand drivers for new housing are residential units are purchased with the intention to rent, we dependent on household formation which is largely based on believe that a heightened supply in completions skewed population growth and marriages. While we note that towards 2015-2016 in the private residential space will put historical demand for housing over 2005-2009 has been pressure on occupancy levels. With a vacancy rate of already driven partly by an accelerated growth in total population in c.7.1% as of 3Q14, the deluge of new supply entering the Singapore (estimated to average c.3.5% over 2005-2009) market is expected to edge vacancy rates higher to the 9- and is mainly from an increase in foreign population in 10% level, which will add further pressure to rental yields as Singapore, while marriages have stayed fairly constant at these units compete for tenants in a slowing market. c.25,000/year over the past decade. Indications of a possible price decline in the coming years can We estimate that the increase in the PPI over the past few taken from (i) weakness in the PPI whenever the average years is fueled by a lag in new completions compared to vacancy rates hikes above c.8.0%; and (ii) when the housing household formation/new foreign demand (average c.8,000 to population-to-housing ratio turns down. As such, we units completed/year, average vacancy rate of c.5% over the forecast residential prices to decline by c.15% over 2015- period). 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
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Industry Focus
Singapore Property
Population Growth (2001-2017F) Population to housing stock ratio 6,000 6.0%
5.0% 5,000 250.0 4.8 4.0% 4.6 4,000 200.0 3.0% 4.4 4.2 3,000 2.0% 150.0 4.0 1.0% 2,000 3.8 100.0 0.0% 3.6 1,000 -1.0% 50.0 3.4 3.2 - -2.0% - 3.0 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) 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Growth in Population (%) Average Growth Rates Source: URA, DBS Bank
Private residential completions spike over 2015-2016 Total Supply completions (HDB and Private) (Landed & Non-landed) Residential completions 50,000 25,000 Units Private Residential Completions HDB Completions Average c.20,500 units 45,000
20,000 40,000 35,000
30,000 15,000 Average c.10,000 units 25,000 20,000 10,000 15,000 10,000 5,000 5,000 0 0
Source: URA, DBS Bank
Market to see a surplus in housing units in 2016 Vacancy Rates and PPI movement
40,000 Surplus/Deficit 250.0 Surplus 250.0 12.0% (units) Index (%) 30,000 10.0% 200.0 200.0 20,000 8.0% 10,000 150.0 150.0 ‐ 6.0%
(10,000) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 100.0 100.0 4.0% (20,000) 50.0 Property Price Index (LHS) 2.0% (30,000) 50.0 Vacancy Rate (RHS)
(40,000) ‐ 0.0% Change in Dwellings URA PPI (RHS) 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 (50,000) ‐ Source: URA, HDB, DBS Bank
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Industry Focus Singapore Property
C. Limited land banking opportunities in 1H15 GLS programme continues to tighten 16,000 Units Further cuts in GLS sites. The Ministry of National 14,000 Development (MND) continue to cut back on total sites Reserve List available in the latest 1H15 government land sales (GLS) 12,000 Confirmed List programme, indicating further cautiousness from the 10,000 authorities. A total of 15 residential sites that can yield up to 8,000 8,765 housing units are available for bidding. Only six private residential sites, including one EC site, which can yield about 6,000
3,020 private residential units, are available on the confirmed 4,000 list, which includes 490 EC units. 2,000 The reserve list, where sales will be triggered only if a minimum - price is achieved, contains nine private residential sites, 1H06 1H07 1H08 1H09 1H10 1H11 1H12 1H13 1H14 1H15 including one EC site, or a potential 5,750 private residential Source: URA, HDB, DBS Bank units.
1H15 Government Land Sales Programme S/N Location Site area Proposed Est. No. of Est, No. of Estimated Estimated Sales (ha) GPR Housing hotel commercial launch agent Units rooms space (sqm) date 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 2.44 2.1 570 - - Available URA Avenue 3 (Parcel B)
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
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Industry Focus
Singapore Property
D.Policy Measures are here to stay, for now 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 “Prices have yet to correct meaningfully” – signaling that interest rate environment is still low and we run the risk that a policy measures will stay in the interim. With transaction premature reversal of the tightening measures may result in a volumes drying up and market already in decline, there have further increase in property prices again. been calls by developers and market observers to the government at lifting some of the more “cyclical measures” However, we believe the scenarios that might warrant a re- like the sellers’ and buyer-stamp duties. However, signals from look at policies will be a marked drop in prices in a certain the government in recent times have put paid to such quarter or a potential tweak in certain policies on a selective expectations and we believe that unless we see a more basis. On that front, “cyclical measures” such as the buyer substantial or steep decline in prices, we are not likely to see stamp duties/seller stamp duties which have been effective in any loosening in measures in the interim. 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
230
210
190
170
150
130
110 TDSR
Additional Buyers' Stamp Duty 90 HDB regulations S e ller's Stamp Duty 70 Adjustment to LTV
1Q10 3Q10 1Q11 3Q114Q11 3Q124Q12 1Q13 2/3Q13 50
Source: URA, HDB, DBS Bank
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Industry Focus Singapore Property
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 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 o Loan-to-Valuation (LTV) 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% o
5-Mar-10 HDB Minimum Occupation Period (MOP) for non-subsidised HDB flats extended to three years from 2.5 years for o flats with HDB concessionary loans and one year for flats with non-HDB concessionary loans Introduction of non-Malaysian PR quota in HDB estates o Restructuring of non-Singaporean HDB housing subsidy o
30-Aug-10 SSD Increase the holding period for SSD from one to three years with graduated stamp duty over this period o LTV Buyers with more than one housing loan at the time of new housing purchase will have to increase in o minimum cash payment from 5% to 10% of valuation limit Lower LTV for multiple mortgage holders from 80% to 70% o HDB For HDB dwellers, households with S$8,000-10,000 monthly income are allowed to buy DBSS with a o S$30,000 grant 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 o
14-Jan-11 SSD Increase SSD period from three to four years, o Raise SSD rates to 16%, 12%, 8% and 4% o LTV 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% o
15-Aug-11 HDB 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 o S$12,000 for EC buyers Increase supply of rental housing to low income households o
8-Dec-11 Introduction of Additional Buyers Stamp Duty (ABSD) 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 o
5-Sep-12 URA issued new guidelines on shoebox housing units i.e. those less that 50sm/unit. From Nov 4, 2012, the maximum number of units that can be built on a development site for non-landed o 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 For developments located in areas that face more severe infrastructure conditions, such as the Kovan, Joo o Chiat, Jln Eunos and Telok Kurau areas, the maximum number of dwelling units is calculated based on an average 100sm/unit
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Industry Focus
Singapore Property
Date Policy Measures 6-Oct-12 LTV restrictions 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 o beyond retirement age of 65 years LTV of 60% for first-time borrowers beyond retirement age o
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. Under the SHB, the CPF top-up requirement has been lowered to S$60,000 per household (subject to a o S$100,000 cap on cash proceeds for those who have not achieved the prevailing minimum sum 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 o allow more elderly to qualify
12-Jan-13 ABSD for private residential purchases by Singaporean buyers First purchase: 0% o Second purchase: 0% to 7% o Third purchase: 3% to 10% o ABSD for private residential purchases by Singapore PRs, First purchase: 0% to 5% o Second and subsequent purchases: 3% to 10% o ABSD for private residential purchases by foreigners and non-individuals First and subsequent purchases: 10% to 15% o LTV for private residential property 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 o 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) Third and subsequent loans, from 60% (or 40% is loan tenure more than 30 years or borrower more than o 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 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% o HDB Mortgage service ratio for housing loans granted by financial institutions to be capped at 30% of o borrowers' gross monthly income or 35% for HDB loans, from 40% 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 o from previous concurrent ownership of minimum occupation of fulfilled, from July 1, 2013 Tighter terms will apply to HDB loans and use of CPF funds to purchase a HDB flat with less than 60 years o lease remaining For ECs 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 o date of award or after physical completion, whichever is earlier Private enclosed space and roof terraces will be included in gross floor area o Introduction of Sellers Stamp Duty of 15%, 10% and 5% for properties and industrial land sold within three years from date of purchase
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Industry Focus Singapore Property
Date Policy Measures 29-Jun-13 MAS introduces new total debt servicing ratio (TDSR) Maximum total debt limit of 60% calculated by taking into account monthly repayment for the property o loan as well as monthly repayments of all outstanding property and non-property debt obligations of the borrower MAS requires FIs to apply a specified medium interest rate of 3.5% for housing (4.5% for non-housing) o loans or prevailing market interest rate when calculating TDSR FIs are to apply a haircut of 30% to all variable and rental income and amortise the value of eligible o financial assets taken into account when computing TDSR MAS requires borrowers' names on a property to be the mortgagors of the residential property for which o 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 Special Housing Grant (SHG) of up to $20,000 for 4-room or smaller flats extended to households earning o up to $6,500 to include middle income families 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 o exercise HDB loans reduced from maximum 30 years to 25 years, with repayment capped at 30% of monthly o income 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 o
Source: URA, HDB, MND, MAS, DBS Bank
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Industry Focus
Singapore Property
7. Retail – Retailers to double down on well-performing malls
Key Assertions RSI ex-motor vehicle growth: back to black, but not out Muted retail sales outlook poses a risk to retailers’ of the woods yet 12% occupancy costs and rental reversions y-o-y growth
Consolidation among retailers to intensify in 2015 10% amid rising labour costs and labour shortage 8% New malls pose a risk to tenant sales at existing
malls, but threat of tenant poaching is minimal 6%
Retail REITs will remain defensive, given well- 4% located assets, good management track record
and staggered WALE 2%
0% 1. More upbeat outlook for 2015, but occupancy costs to
r-10 r-12 r-13 r-14
-2% p p p p Jul-10 Jul-12 Jul-13 Jul-14 Jul-11 Jan-11 Jan-13 Jan-14 Jan-12 Jan-10 Oct-10 Oct-12 Oct-13 Oct-14 Oct-11 Apr-11 A A A remain under pressure A
-4% Choppy retail sales in 2014. October’s RSI ex-motor vehicles Source: CEIC, Singstat, DBS Bank grew 1.6% y-o-y in October, the second consecutive month of growth, and the highest observed since August 2013. Strong currency and cheap travel increase the attractiveness While this is positive news in that it has stemmed a six-month of shopping overseas. The strong Singapore dollar has downward trend, we note that retail sales have been increased the relative value of travelling and shopping essentially range-bound since late 2012, which indicates that, abroad, and the proliferation of low cost carriers (LCCs) such in nominal dollar terms, retailers aren’t earning more today as Tiger Airways, Jetstar and AirAsia in recent years has than they were two years ago. 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 Retail sales have been flat for the last two years 2010=100 trips” to arbitrate on currency differences to purchase the 120 same items at lower prices, representing lost revenue for local 115 retailers.
110 Decline in tourist spend also a contributing factor. Retail sales were partially eroded by the decline in Chinese visitor arrivals 105 P ositive momentum over for YTD 2014 and a drop in tourism shopping receipts, as 100 t he last two months Chinese tourists are the main contributors to tourist simply a payback for a torrid 1H14 shopping. Whether or not shopping spend will improve will 95 depend on the return of the Chinese tourists, as well as the 90 ability for Singapore to retain its attractiveness as a “unique” and favoured shopping destination.
r-11 r-12 r-13 r-14 p p p p Jul-11 Jul-12 Jul-13 Jul-14 Jul-10 Jan-12 Jan-13 Jan-14 Jan-10 Jan-11 Oct-11 Oct-12 Oct-13 Oct-14 Oct-10 A A A Apr-10 A Source: CEIC, Singstat, DBS Bank Resident expenditure abroad as a % of Private Leakage of retail spend into travel and e-commerce. As Consumption Expenditure (PCE)
discussed in our previous report “Diving Deep into the 30,000 S$'m Residents' Expenditure Abroad % of PCE 18.0% Residents' Expenditure Abroad as % of PCE Nuances of the Retail Sector” dated 17 September 2014, 17.5% 25,000 lacklustre retail spending belies positive wage growth of 1.5- 17.0% 2%, as forecasted by our economists for 2014. We posited 20,000 16.5% the potential “leakage” of the consumer dollar into other 15,000 16.0% expenditure categories such as travel and e-commerce, which 15.5% are not captured in the RSI, and do not feed directly into the 10,000 revenues of physical retailers. 15.0% 5,000 14.5%
0 14.0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: CEIC, Singstat, DBS Bank
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Industry Focus Singapore Property
Difficult transition to e-commerce for many physical retailers. on two fronts: escalating labour costs which impinge on their Many retailers have identified e-commerce as a key threat to profitability; and the lack of available labour for expansion. retail sales. Internet platforms are able to offer cheaper prices for many goods as they need not pay shop rent, thereby Foreign labour policies continue to bite. The Ministry of allowing them to undercut physical retailers. On their end, Manpower’s (MOM) reduction in the Dependency Ratio many physical retailers find it difficult to implement successful Ceiling (DRC) – which determines the number of foreign e-commerce strategies due to limited product differentiation workers a firm is permitted to hire based on the number of (for retailers without proprietary products), limited platform local staff it has – will become effective for all retailers in July differentiation as customer service is not easily translated 2015, which means that companies whose total number of online, and conflicts with brand principals who often run their foreign staff currently exceeds the new DRC limits are facing own online stores, thereby cannibalising the franchisee’s in- c.20-30% reductions in existing foreign headcount across all store revenues. hiring levels. Furthermore, the final hike in levies will, for many retailers, eliminate the theoretical cost savings from the Rising occupancy costs observed as sales growth has not reduction in headcount. caught up with rental growth. Looking towards 2015, we expect stronger retail sales growth than was seen in 2014, as Low unemployment rate pushing up labour costs. Singapore’s lower oil prices put money in consumers’ pockets. That said low unemployment rate has made it more difficult for retailers however, we believe that occupancy costs will remain under to hire local staff, given the relative unattractiveness of service some pressure. Based on RSI growth (compared against three staff positions, the historically temporary nature of the job, and years ago to mirror typical rental reversionary cycles), we find perception that such jobs are low paying. As a result, retailers that, barring nominal sales growth of 10% in 2015, sales will have been forced to raise the starting pay for locals as they still be unable to keep up with average reversions of 6% seek to retain existing staff and entice new job seekers to fill (implying c.2% rental escalations p.a.), indicating renewed vacant positions. Coupled with rising costs associated with occupancy cost pressures. These observations were echoed by hiring foreign labour, retailers are hard-pressed to maintain retail REIT managers during the CY3Q14 results briefings, and profitability, especially in a weak retail sales environment. beg the question of whether historical reversions of 6% are sustainable going forward. Retailers’ consolidation to intensify in 2015. Given current trends of (a) labour shortages, (b) rising labour costs, and (c) CMT’s portfolio reversions vs. RSI growth over 3 years future labour reductions, retailers will need to consolidate Re versions (%) their operations in order to maximise their own profitability. 40% RSI Growth RSI ex-motor vehicles (LHS) 16 over 3 years ago CMT portfolio reversions (%) RHS As retailers seek to selectively close underperforming stores 35% 14 and shift workers into better performing ones, we reckon 30% Re tail sales growth vs 3 years 12 that they will choose to remain in malls that are (i) sufficiently p r ior: worse than 25% during GFC 10 diverse to facilitate trip-chaining or cater to a variety of 20% interests, (ii) large enough to attract higher levels of shopper 8 15% traffic, and (iii) located close to transport hubs, thereby 6 making them more accessible to shoppers. Looking ahead, 10% we expect the consolidation process to intensify further, as 4 5% retailers seek to comply with reduced foreign worker quotas 2 0% by July 2015. -5% 0 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Source: DBS Bank estimates 3. New malls could add further pressure to existing retailers’ tenant sales
2. Retailers: consolidation efforts to intensify amid The swing to the suburbs. 2015 will be a story of the suburbs, rising labour costs and labour shortage driven by the openings of five new shopping malls and one Overall costs to increase amid rising levies, reduced foreign newly refurbished mall in 4Q14. The opening of Seletar Mall headcount and low unemployment. In an industry which is in Sengkang offered much needed retail space in the heavily reliant on manpower due to its customer-oriented Northeast region, which had the lowest retail space per nature, retailers are now facing escalating costs stemming resident population density in Singapore (<600sqm/resident) from the combination of minimum wage policies, foreign as of 2013. In the East, the newly refurbished Eastpoint Mall labour policies and low unemployment rates. Retailers are hit 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
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opened in September. Meanwhile, new retail space continued One KM occupy c.30% of retail area, while 65% of the shops to be added in the West region, with the opening of the 56k- at hillV2 is dedicated to F&B offerings. Furthermore, the sqft hillV2 at Hillview Rise, and NTUC’s 80k-sqft Warehouse newly refurbished Eastpoint Mall dedicated its 13% Club, located at Benoi Road. expansion in NLA to F&B tenants. Given carpark load restrictions, it would appear that most of these new malls Looking to 2015, the suburban flavour of new retail space is have maxed out their F&B offerings, mirroring the trend set to continue, with major openings anticipated in Jurong observed among the retail REIT landlords to steadily increase East (Big Box), Punggol (Waterway Point) and Paya Lebar F&B offerings as a % of portfolio NLA. (Paya Lebar Square). Similarly, expenditure on education services has grown at a % of new retail mall area by region 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.
Outside Orchard Central 32% Composition of NLA for CMT (2009-2013) Region 35% % of NLA 44% F&B Services 30% Education Beauty & Health 6% 6% 25% 6% 2% 3% Downtown 5% 4% Fringe Area Core 20% 5% 4% 3% 16% 8% 4% 3% Source: DBS Bank estimates 15%
10% 18% 19% 19% 16% Breakdown of new retail space by region 15% 5%
1,800,000 sqft 0% 2009 2010 2011 2012 2013 1,600,000 Source: CMT, DBS Bank 1,400,000
1,200,000
1,000,000 Composition of NLA for FCT (FY07-14) 50% 800,000 % of NLA 45% Beauty, Hair, Cosmetics, Personal Care 600,000 Food & Restaurants 40% 8% 400,000 Services/Education 9% 8% 35% 9% 200,000 8% 4% 0 30% 2014 2015 2016 2017 2018 3% 3% 25% Orchard Downtown Core Rest of Central Area Fringe Area Outside Central Region 20% 28% 31% 26% Source: URA, Savills, CBRE, Straits Times, DBS Bank estimates 25% 26% 25% 15% 22% 22% Landlords banking on F&B and education. The new suburban 10% 5% malls have put F&B, services and education at the front and 6% 6% 6% 5% 4% 3% 3% 5% centre of their offerings – a marked contrast to the chain 0% 2007 2008 2009 2010 2011 2012 2013 2014 store/franchise brand theme that featured prominently in the Source: FCT, DBS Bank 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
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Industry Focus Singapore Property
New malls could impact tenant sales at existing malls. As has education and services) which competes directly with existing been observed in the Jurong Lake District in early 2014, a malls, we anticipate some weakness in tenant sales for the substantial increase in retail space inevitably generates some likes of Tampines Mall (owned by CMT) and Changi City Point disruption in shoppers’ travelling and shopping patterns. (owned by FCT), where F&B, education, services, and beauty Given the concentration of new malls in the East and & health constitute 42% and 53% of NLA respectively. Northeast regions and their positioning (focus on F&B,
Location of new mall openings in 2014/15 vis-a-vis population retail density per postal district
SeletarMall
Waterway Point
hillV2
Warehouse Club
Big Box One KM
East Village EastpointMall Paya Lebar Square
>2000 sqm/resident 600 to <1000 sqm/resident <400 sqm/resident Opening in 2015 1000 to 2000 sqm/resident 400 to <600 sqm/resident Opened Source: Seacitymaps, Singstat, URA, DBS Bank estimates
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4. Retail REITs will remain resilient despite challenges in retail REITs will remain positive, albeit at lower-than-historical the retail scene levels of 6% for smaller or underperforming malls.
Pressure on landlords to retain tenants. Looking into 2015, a Staggered lease expiry schedule will delay impact to rents. major challenge for landlords would be to retain existing Majority of retail REITs have weighted average lease expiry tenants in an environment where many retailers are (WALE) profiles of 2-3 years, which will ensure that barring consolidating their operations or not expanding. As retailers any pre-terminations, the impact of declining profitability on delay their decision-making and consider other available rents will be more measured than acute for landlords. Most options, we believe that landlords must diversify their tenant retail REITs, with the exception of FCT, have <30% of leases base and lease structure beyond the typical chain-store expiring in 2015, which should protect substantial portions of tenants or 3+3 years fixed rent leases. Landlords that decline portfolio income in the year ahead. Despite significant lease to adopt innovative and more flexible leasing options could renewals due 2015, we believe that FCT should continue to face increasing competition for a static or marginally declining enjoy stable reversions as majority of expiries will be at pool of tenants. Causeway Point and Northpoint, the REIT’s two largest malls, which have monopoly over retail space in the north of However, new retail space unlikely to compete for tenants in Singapore. the next three years. Despite the increase in retail supply in suburban areas, we don’t think that they will detract from We prefer Orchard Road malls to suburban malls. We believe existing demand, given that new tenants are locked in for an that rents in Orchard Road will outperform those in suburban average of three years. As such, rental space that is available areas, due to the nature of tenants in each region. Within for renewal or new letting will still be limited to the more Orchard Road, a large proportion of tenants are brand mature malls in the next few years. principals themselves, who, by virtue of having better profit margins than franchise holders of the same brand, are able to Well-located and well-managed assets should weather the absorb higher occupancy costs, and willing to pay higher choppy retail climate. That said, the impact of the various rents for the sake of maintaining brand visibility within issues discussed above will not be uniform across all malls in Orchard Road. As such, landlords have more wiggle room Singapore. Retailers would prefer to remain in malls that are when negotiating rent increases. Tenants in suburban malls large and diverse enough to generate recurring traffic, and have less margin for error – increases in rent that are not are close to important transport hubs such as MRT stations or accompanied by a rise in tenant sales could push occupancy bus interchanges for easy access, and malls that are able to costs above the 16-18% threshold for general retailers and offer these qualities will outperform other smaller and less the c.20% threshold for F&B tenants. As such, landlords of well-located malls. suburban malls also have less room to manoeuvre for rent increases, well knowing that excessive demands could push REIT-owned malls are well positioned to weather near-term the tenant out of the mall entirely. For 2015, we have challenges. We believe that in the next year, retail REITs will assumed 0-1.5% annual rental growth for suburban malls, benefit the most from current consolidation efforts, as and c.2-2.5% p.a. growth for Orchard Road malls. tenants would prefer to consolidate in their malls, given the good location of their malls, active asset enhancement and Staggered WALE profile for retail REITs upkeep, as well as their strong advertising and marketing 50% power which generates consumer awareness and shopper 45% CMT traffic. 40% CCT (Retail + hotel) 35% Retail REITs will remain defensive in the near term. We Suntec (retail) 30% estimate that REIT-owned malls are still the minority retail FCT space in Singapore, accounting for only c.23% of all shop 25% SPH REIT space, and 34% of privately held shop space. As such, to the 20% MCT (retail) extent that REIT-owned malls are able to generate positive 15% sales growth, they will be able to command a premium in 10% SGREIT rents relative to competitors, and can better weather 5% OUEHT downward pressure on rents. Given strong demand for REIT- (retail) 0% owned malls in general, we expect that rental reversions for FY15/16 FY16/17 FY17/18 >FY17/18 Source: Various REITs, DBS Bank
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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
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REIT-owned shopping malls within 100m of an MRT/LRT station or bus interchange
Causeway Point
Yew Tee Point
Northpoint Lot One Bukit Panjang Plaza
Junction 8
Tampines Mall Westgate JCube Wisma Atria Clementi Mall Plaza Singapura, Atrium@Orchard
Bugis Junction, Changi City Point Bugis+
Clarke Quay Suntec City
CapitaMall Trust Raffles City Frasers Centrepoint Trust
Starhill Global REIT
Mapletree Commercial Trust
SPH REIT VivoCity Suntec REIT
Source: URA, SMRT, DBS Bank
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8. Office – Displacement demand to drive sustained uplift in rents for 2015
Key Assertions Office rents by subsector Office rents outperformed the market in 2014 on 12.00 the back of limited supply Displacement demand from Equity Plaza and 2HR 10.00 should bolster rents in 2015 8.00 Office REITs could enjoy stronger-than-expected reversions in 2015 as new supply only anticipated 6.00 to complete in 2H16 4.00
A.Office rents continue to grow despite lower 2.00 absorption demand in 2014
P Raffles Place/ New Downtown A Raffles Place/ New Downton Strong growth in office rents, led by CBD offices. Office rents A Shenton Way/ Tanjong Pagar A Marina/ City Hall A Beach Road A Orchard Road have risen strongly in 2014, led by the Central Area (9.4%), A City Fringe B Suburban followed by the Rest of Central Area (+8.6%) and City Fringe Source: Colliers: DBS Bank (+6.7%), according to URA. Supplementing these figures with more granular analysis by industry consultant Colliers, we find Occupancy rates at their peak. According to URA, Downtown that Raffles Place/New Downtown rents have surged 18% y-o- Core occupancy is the highest at 91.9%, followed by Rest of y, followed by Grade A Raffles Place/New Downtown at 12% Central Area (91.8%), and Central Area (91.5%). City Fringe and Grade B City Fringe/Suburban offices (+11%). Across the occupancy rates have also improved to 91% from 86% in sub-segments, office rents have hit their highest levels since 4Q13, marking three consecutive quarters of improved 2011. demand. Numbers provided by Colliers indicate even tighter vacancies for Grade A offices – Tanjong Pagar/Shenton Way URA office rental index occupancy rates have hit maximum capacity of 99.4%, 250 4Q98=100 followed by Marina/City Hall at 98.3%, City Fringe at 97.8% and Grade A Raffles Place/New Downtown at 97.2%. 200 Meanwhile, Premium Raffles Place/New Downtown rents have 150 improved to 94.1%, a marked improvement from 87% just a year ago. 100
50 Occupancy rates: 3Q13 vs 3Q14 100% Occupancy rate 3Q13 3Q14 0 98% -08 -13 -06 -11 -04 -09 -14 r-06 y y p p g g g p
Jul-07 Jul-12 96% Jan-05 Jan-10 Jun-05 Jun-10 Oct-08 Oct-13 Feb-07 Feb-12 A Apr-11 Se Se
Dec-07 Dec-12 Nov-05 Nov-10 Au Au Au Mar-09 Mar-14 Mar-04 Ma Ma Office: Central Region Office: Fringe Area Office: Central Area 94%
92% Source: URA, CEIC, DBS Bank 90% 88% Rent growth by subsegment y-o-y 3Q14 86%
Suburban 11% 84% City Fringe 9% 82% Orchard Road 2% 80% Beach Road 11% Raffles Raffles Shenton Marina/ Beach Road Orchard City Fringe Suburban Shenton Way/ Tanjong Pagar 10% Place/ New Place/ New Way/ City Hall Road Raffles Place/ New Downton 5% Downtown Downton Tanjong Suburban 11% Pagar BBBBBBB City Fringe 5% Source: Colliers, DBS Bank Orchard Road 3% Beach Road 8% Marina/ City Hall 9% Shenton Way/ Tanjong Pagar 9% Raffles Place/ New Downton 12% Raffles Place/ New Downtown 18% PAAAAAA 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%
Source: CEIC, Colliers, DBS Bank
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Different drivers in 2014 vs 2011. Despite similar rental levels only office slated for completion in 2015 is outside the Central today as in 2011, we observe several key differences between Area: Paya Lebar Square, a 430k-sqft strata-titled mixed the two: (a) net absorption rates of c.1m sqft for 2014 is much development, which will TOP in 1Q15. lower than 2011’s c.2.3m sqft absorption rate; (b) demand today is driven by insurance, commodities and IT companies, Supply crunch set to worsen with offices removed from the that tend to take smaller spaces, compared to financial market. The supply crunch in the Central Area/Downtown institutions, which drove demand for large spaces in 2011; and Core will be exacerbated by vacations in Equity Plaza (250k (c) 2014 will witness net supply of c.1m sqft vs 2m sqft in sqft) by March 2015 and 2HR (170k sqft) in 2016, which will 2011, lower than the historical 5-year average of c.1.5m sqft. remove c.420k sqft of office space from the market. With the fate of Prudential Tower still uncertain (some GFA is expected Economic uncertainty likely to continue dampening absorption to be strata sold by its new owners), the shortage of leasable rates. It would appear, then, that tepid demand has been office space in the CBD could worsen in the near term. mitigated by historically low supply. We have maintained the view that given declining net absorption rates over the past New completions in 2016 may not come early enough. three years, current supply-driven rent increases are not Although we expect c.1.9m sqft of office NLA to be completed sustainable in the longer term, unless there is a significant in 2016, current project timelines place the majority of uptick in Singapore’s economy. Our DBS economist has completions in 3Q/4Q16, which may be too late for companies lowered Singapore’s GDP growth forecasts to 3.2% from whose leases expire in 2016 to move into, given that an 3.6% previously, on the back of the uncertain global economy additional three to six months is required for fitting out. We and volatile international monetary policies. In that light, we reckon that these companies could opt for short-term expect net absorption to remain low at <1m sqft for 2015. extensions of their leases of roughly 12 to 18 months, depending on the bargaining power of the landlord. In this Historical net supply and absorption rate instance, we could see office rents continue their upward trajectory until 2016 rather than 2H15 which is expected by 4,000 '000 sqft most market observers, as landlords seek to capitalise on 3,000 traditionally higher short-term rents.
2,000 We anticipate that these displaced tenants will likely move in either one of two directions: renting Grade A offices, or 1,000 moving out of the CBD into city fringe offices or business parks. Our expectations are predicated on two observations: 0 (a) Grade A shadow space is increasing, and (b) we are seeing evidence of companies that qualify for business parks, moving -1,000 Net Supply: Private Sector into city fringe business parks in order to defray costs. Net absorption: Private Sector -2,000 Source: URA, CEIC, DBS Bank estimates 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, B. Rents to rise 5-10% in 2015, softening expected only in has been increasing as financial institutions choose to pare 2H16 down their expansion plans on the back of global economic Expect 10-15% rise in office rents through 2015. Despite the uncertainties and Singapore’s low unemployment rate. As a moderation in net absorption rates, we expect office rents to result, they have either given back space, or chosen to sublet continue their upward trajectory in 2015, led by Grade A excess office capacity. We note that, according to CBRE, Downtown Core (+10-15%), followed by Grade A City Fringe although Grade A office vacancies currently stand at 4.3%, (+5-10%) and Grade A Raffles Place (+5-10%). Based on pre- the submarket is running at a higher vacancy rate of 5.6%. As commitment rates for offices opening at end-2014 companies transition to more efficient “open office” concepts, (CapitaGreen 40%, South Beach 33%, Westgate Tower 60%), Grade A offices could prove to be an attractive alternative to there remains c.1m sqft of new office space available for lease, Grade B Core CBD offices, given their more modern of which 800k sqft is located in the Core CBD and City Fringe, specifications. and the remaining 200k sqft located in suburban areas. The
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Office Supply (2014-2017) Pre- Development Location Developer NLA Location TOP 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% Siong Feng/ Sun Paya Lebar Square Paya Lebar 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
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C. Recent leases indicate strategic shift in tenants' Watershed year for suburban offices. The opening of JEM and preferences. Westgate office towers was the office sector’s first step in the direction of the URA Master Plan’s vision for decentralised Changes in leasing strategies as tenants request for longer regional centres which allow residents to “live, work and play” leases. The 4.7m sqft of new supply anticipated in 2016-17 outside the city centre. Initial response to these off-central has cast a pall over current rent negotiations. According to office spaces seems positive, as JEM is fully taken up by the Colliers, tenants are increasingly requesting for 5+5, 6+6, or Ministry of National Development (MND), the Agri-Food and 12 year leases with rent reviews, instead of the typical 3+3 Veterinary Authority of Singapore (AVA), and the Building and years, in order to defray higher occupancy costs and capital Construction Authority (BCA), and Westgate Tower has expenditure on fittings. We note that similar strategies are reached c.60% pre-commitment, according to media sources. currently being employed by KREIT, which announced that it Westgate Tower’s latest tenant is CPG Corporation (formerly has completed early renewals of some 175k sqft of NLA, some the Singapore Public Works Department), which will take up up to three years in advance of lease expirations, in 83k sqft of space, and vacate its current premises at Novena anticipation of new supply beyond the next 1.5 years. Square. Based on consultant reports, we estimate that this move will allow CPG Corporation to achieve c.30% savings in Moving to the fringes of the centre. Over the past year, we rent psf, ceteris paribus. have noted instances of certain qualifying companies located in the CBD or central areas, choosing to move to business Despite change in patterns, CBD rents should still outperform parks or city fringe offices. As the rent differential between city in 2015. Despite the nascent sprouting of suburban offices, fringe offices/business parks and CBD offices has widened to we expect CBD office rents to hold steady as the area still as much as 60-65%, newer business parks in particular have remains the desired location for many companies, in particular become attractive alternative locations due to lower rents and those that are new to Singapore, seeking to attract high modern facilities. quality manpower. We reckon that outside central office supply should taper off after Paya Lebar Square completes in For example, CSC Computer Services opted to relocate to UE 2015, as the government waits to test the operability of the Biz Hub Changi from Twenty Anson, while DSM Nutritional Jurong Lake District before launching further government land Products is moving into Mapletree Business City as 2HR sales. 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
12.00 S $ psf pm
10.00
8.00 Re nt differential of up to 60% for 6.00 c e ntral area vs city fringe offices 4.00
2.00
0.00
-99 -10 -95 -06 -07 r-00 r-11 y y p p g
p p Jul-08 Jul-97 Jan-92 Jan-03 Jan-14 Jun-09 Jun-98 Feb-91 Oct-94 Feb-02 Oct-05 Feb-13 A A Se Se Dec-92 Dec-03 Nov-93 Nov-04 Aug-96 Au Mar-90 Mar-01 Mar-12 Ma Ma Median Rent psf: Office Central Area Median Rent psf: Office Fringe Area Source: CEIC, URA, DBS Bank
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Industry Focus Singapore Property
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 Comments (sqft) 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
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D.More caution on office REITs despite strong rental WALE of various office SREITs 45% momentum % of NLA 41% 40% 38% Distributions to remain stable through 2016. Given that office 35% 33% 30% rents are likely to keep rising in 2015, we foresee minimal 30% 27% 25% 24% downside risk to our distribution estimates for office REITs. 25% 21% 21% 21% 19% 20% 17%18% 17% 18%
For CapitaCommercial Trust (CCT), c.30% of NLA is up for 15% 12% renewal in 2015, and we understand that a majority of it 10% stems from GIC’s lease in Capital Tower, which has a rental 5%
escalation cap of c.20-30%. Given that expiring rents of c.S$6 0% psf pm are significantly below market rents (of c.S$10 psf pm), 2015 2016 2017 >2018 CCT KREIT Suntec OUECT we expect rents to hit the cap, thereby contributing to a 3% Source: Various REITs, DBS Bank growth in revenue for CCT in 2015. Other significant lease expiries include 6 Battery Road and One George Street, where However, watch out for share price fluctuation before rental 6% and 4% of total office income are due for renewal in peaks and troughs. Supported by long-term leases and the 2015 respectively. One potential upside for the stock would be outlook for the office physical market still positive, we believe significant uptick in leasing activity in CapitaGreen in early that downside risk to distributions in 2015 for office REITs 2015, which should translate into a stronger-than-expected (CCT and FCOT) is minimal. 2H15, given 3-6 months of rent-free period. However, we have also noted that historical trading patterns For Fraser Commercial Trust (FCOT), earnings growth will of office REITs tend to lead physical office spot rents by c.9-12 come mainly from full year contribution post the expiry of the months. Using CCT as a proxy to compare share price master lease at Alexandra Technopark (ATP). Given its prime movements in the office sector to spot rents, we have noted in location within Alexandra prescient which is just off CBD, we previous office up/down cycles in 2007/2009 and 2014, CCT’s expect upside to rentals given an attractive spread to rising share price tends to peak c.12 months before URA median rents within the CBD. rent peaks, and recovers c.12 months before a trough in median rents. With expectations that office rents are likely to What to look out for: upside risk from shorter term lease peak at end-2015/1H16, we would be more hesitant to extensions. Beyond 2015, a key catalyst for office REITs would recommend investors to accumulate the stock after 1H15. be their ability to sign short-term lease extensions for leases that expire in 2015/2016. Should there be a trend towards 12- CCT share price performance vs. URA median rents 18 month extensions, we could see upside potential for the 2.5 12 months ? 12.00 likes of CCT, which have 47% and 42% of NLA expiring in
2015/16 respectively. 11.00 2
10.00 Among the office REITs, we like CapitaCommercial Trust (CCT) 1.5
for its potential for significant near-term rental reversions, 9.00
given that 47% of NLA is due for renewal in 2015/2016.. We 1 8.00 expect 2015 DPU to grow c.3% y-o-y, as higher rents are 0.5 mitigated by share dilution post redemption of the Convertible 7.00
Bonds. Over the next two years, we expect DPU to grow at a 0 6.00 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 CCT share price URA median rent Source: CEIC, URA, CapitaCommercial Trust, DBS Bank assumptions would represent upside to distributions and share price.
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Industry Focus Singapore Property
9. Industrial – Business Park space to shine
Key Assertions Industry facing 14% expansion in industrial supply Rents to moderate 5% p.a. due to concentration Total % Chg New % of new industrial supply completions in 2014- Supply at y-o-y stock Increase 2016 3Q14 (‘m sqm) (‘m sqft) Business Park space to surprise on the upside, Warehouse 8.3 10% 1.5 18% given lack of office space in the CBD Single User Factory 22.7 3% 2.3 10% Picks A-REIT/MINT to outperform Multi-User 9.8 7% 1.6 17% Business Park 1.6 4% 0.6 37% Pace of supply completions over 2015-2016 to have an impact Total Industrial 42.3 6.0 14% on industrial sector performance. The industrial market continues to face an increasingly competitive operating Source: URA, DBS Bank environment due to a heightened pace of new industrial space completions over 2015-2016. Based on latest URA statistics, a Vacancy rates to increase to 9-10%. Taking into account total of 6.0m sqm (60.3m sqft) of new industrial space is under assumed pre-commitment rates and projected new demand, construction/ planning and projected to complete over 4Q14- faced with an increasing supply outlook, we believe that the 2017, of which 95% of it is expected to complete within the industry will see vacancy rates head towards 10-11% over the next two years. This represents an annual increase in supply of next two years, as new supply progressively completes in the 2.4m sqm, more than double the average supply completions coming years. As the influx and pace of completions are over the past five years. When completed, total industrial stock skewed over FY15-16F, we believe that on average, spot is expected to increase by 14%. 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. Industry facing 14% expansion in industrial supply
3,000 Sqm 3-year average 2.4 m sqm We see signs of stability within the Business Park space and
2,500 believe the outlook to be most resilient following a year where
(i) landlords have actively invested in capex to spruce up and 2,000 5-year average 1.1m sqm upgrade to attract new tenants; and (ii) qualified tenants re- 1,500 looking at the Business Park space due to a lack of supply in
1,000 the Central Business District. For the Warehouse segment, the
large incoming supply (+19% expansion) is likely to be 500 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
Demand Supply refurbish or redevelopment their properties to remain relevant. Source: URA, DBS Bank
In terms of the industrial sub-segment breakdown, while all Projected pre-commitments for industrial space industrial sectors are expected to see the completion of a fair New Est % Est stock Demand* Vacancy Vacancy amount of new supply, we note that the Business Parks sub- (‘m sqft) (3Q13) (2014F- segment will see a c.37% increase in available space, while the 2015F) other sub-sectors are seeing in excess of c.10-18% increase in Warehouse 1.6 75% 10% 11% total space. Given that the pace of supply completions is Single-User 2.3 95% 5% 6% skewed towards 2014-2015, we expect shorter-term hikes in Multi-User 1.6 65% 11% 14% vacancy rates, which will result in downward pressure on Business Park 0.6 80% 16% 16-17% Total 6.1 70% 8% 9-10% rentals. Industrial *Including space pre-committed, user-built and projected demand Source: URA, DBS Bank
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Industry Focus
Singapore Property
In summary, we expect spot rentals to decline by 5% over Industrial REITs – conversion of single-tenanted properties to 2014, across various industrial segments (apart from Business multi-tenanted properties to impact short-term earnings. While Park space where we forecast a c.3% increase). Our historically being shielded from having a portion of its leases discussions on the demand/supply outlook for the various tied to long leases through single-tenanted properties, industrial subsectors are in the subsequent pages. Industrial S-REITs, in recent quarters, have seen the conversion of these properties into multi-tenanted properties. Due to Rental projections underlying vacancies, we have seen slight earnings erosion in Sector FY13 FY14E FY15F FY16F earnings but impact on distributions has remained limited at S$ psf S$ psf S$ psf S$ psf <1% for most industrial REITs that we cover. Multi-User Factory 2.02 2.15 2.04 1.94 Business Parks 4.25 4.00 4.12 4.24 Looking ahead, we believe that this trend will likely to continue Logistics 1.91 2.05 1.95 1.85 with expected further conversion, as alluded to by most industrial landlords but we do not expect that to have a major % Chg % Chg % Chg % Chg impact on earnings estimates. Multi-User Factory 0% 7% -5% -5%
Business Parks 2% -6% 3% 3% Stricter sub-letting policy to hit REITs over medium term. Logistics 4% 7% -5% -5% Jurong Town Corporation (JTC) revised subletting policy which * According to URA (i) limits the maximum allowable sublet quantum to 30% of Source: URA, DBS Bank GFA from the current 50%, and (ii) must sublet at least 70%
of the space to anchor subtenants. While most industrial S- Negative rental reversions projected over FY15-16F. The REITs are affected by this new ruling, the impact is not likely to expected declines in spot rents are expected to further narrow be felt in the immediate term as existing leases have until end- the spread between expiring rent levels (assuming a 3-year 2017 to adjust to this revised ruling. rental cycle). As such, for leases that are mainly on a 3-yearly
rolling basis, we expect most S-REITs to report on average, Lower number of sites available from Government land sales negative rental reversions over 2015-2016. We believe that the (IGLS) from 2H14. The total quantum of industrial GFA Business Park space will buck this trend, where we expect available for tender from the IGLS has been cut significantly positive rental reversions to the tune of c.3%-4% over the next since 2H14 to c.0.1m sqm, which indicates that the two years. government remains mindful of the significant supply that
needs to be digested first over 2015-2016. This, in our view, is Rental Reversions to turn negative a medium-term positive for the sector.
50% Negative reversion
40% Cuts in industrial land supply from 4Q14
0.60 30% 'm sqm 0.50 20%
0.40 10%
0% 0.30 Reserve 2009 2010 2011 2012 2013 2014F 2015F 2016F Confirmed 0.20 -10% Business Park Warehouse Factory 0.10 -20%
Source: URA, DBS Bank ‐ 1H10 2H10 1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14 1H15
Source: JTC, URA, DBS Bank
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Industry Focus Singapore Property
for strata-sale, (iv) Big Box (0.09m sqm) by TT international , Warehouse subsector – Risk from shadow space and (v) Singapore Post’s 0.5m-sqm warehouse to kick-start its e-commerce arm. Even landlords like MLT’s multi-user Resilient in the face of incoming supply. According to URA, as warehouse development in Toh Guan Road, while expected to of 3Q14, there were 8.3m sqm (c. 89m sqft) of total complete only in 2016, is understood to be in active warehouse space. Over the past four quarters, we have seen conversations with end users to take up the space. close to 0.7m sqm (8.0m sqft) of completions, representing an increase of c.10% y-o-y. Selected major warehouse space under development Warehouse Space Major completed developments include Cogent 1 Logistics Hub development location Developer (m sqm) (0.15m sqm), Mapletree Benoi Logistics Hub (0.09m sqm) Under construction Nippon Express Global Logistics Hub (0.05m sqm), Schenker Supply Chain City YCH 0.13 Singapore development at 35 Greenwich drive (0.05m sqm) Pandan Road devt Poh Tiong Choon Logistics 0.10 and Singapore Wine Vault Building (0.07m sqm) by CWT Carros Centre Kranji Devt Pte Ltd 0.11 Limited. While a majority of these newly completed space are Big Box TT I’ntl Limited 0.09 user-built facilities or are already 100% pre-committed, we Singapore Post Logistics Singapore Post 0.05 Hub understand that due to consolidations, shadow space have DHL Innovation Center Cache Logistics 0.05 emerged at some of the older warehouse space, resulting in Source: URA, DBS Bank vacancy rates hiking towards c.10% as of 3Q14.
New developments to see strong take-ups, risk from shadow Demand/Supply for warehouse space space. While new warehouse developments are expected to be
1,000 12% mainly pre-committed or driven by end-user needs. While some Sqm 900 of this new demand might be expansionary in nature, the 10% 800 uncertainty on potential consolidation of space which will 700 8% result in the emergence of shadow space from existing 600 warehouses will be a key overhang on the sector’s 500 6% performance going forward. 400 4% 300 As a result, warehouses with older specifications are likely to 200 2% 100 see occupancy pressure. As such, we believe the warehouse
‐ 0% sector is likely to see vacancy levels remaining at c.10-11% over the next few years. Spot rents, which have historically Demand Supply Vacancy (%) shown a strong correlation to vacancy rates (correlation of Source: URA, DBS Bank close to -0.94), is forecast to decline by up to 5% per annum.
Significant supply outlook. Supply in the warehouse space over Warehouse: Rental vs Vacancy trends (2004-2016F) the coming two years remains significant at close to 1.5m sqm 2.50 S$ psf pm Warehouse 96% (16.0m sqft) of space completing over 4Q14F-2016F. We note that 71% or 10m sqft is currently under construction, with the 94% 2.00 remaining under planning stage. Based on the expected pace 92% of completion, most of the new incoming supply will be 90% 1.50 completed in 2014. 88%
1.00 86% A large proportion of the new developments are located in the 84% traditional logistics hub of the Jurong/Tuas region in the 0.50 82% Western part of Singapore and in Tampines. Major ramped-up - 80% warehouses under construction include (i) Supply Chain City, a
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
0.13m-sqm integrated warehouse development by YCH 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 2014F 2015F 2016F Group, (ii) a 0.1m-sqm warehouse development by Poh Tiong Rental (S$psf pm) LHS Occupancy Source: URA, DBS Bank Choon, (iii) Carros Centre which is a 0.1m-sqm development
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Factory subsector – Supply risk remains Selected new public sector projects Space Agency Region Increased competition from supply. As of 3Q14, based on URA Factories (m sqm) data, total factory space (measured as Multi-User & Single-User Factories) at 32.4m sqm (348m sqft) which is an increase of JTC Aerospace (phase 2) @ 0.09 JTC East 4% y-o-y. We estimate close to c.71% of factory space is Seletar Aerospace Park single-user factory space, where demand is typically driven by JTC Aviation Two @ Seletar 0.01 JTC East expansion needs of the end user, while the remaining 29% is Aerospace Park built to cater to users with smaller space requirements. JTC BioMed One @ Tuas 0.01 JTC West Biomedical Park Single-user factory space is mainly driven by expansion needs JTC Food Hub @ Senoko 0.03 JTC West by end users and should continue to enjoy occupancy rates of JTC LaunchPad @ One-North 0.02 JTC Central close to 95%. While certain developments might include Kaki Bukit Autohub 0.01 HDB East potential space that is sub-leased out to smaller occupiers, we Sin Ming Autocity 0.05 HDB Central believe risks going forward are lesser, given JTC’s tighter sub- Source: URA, DBS Bank leasing requirements which limit the total quantum of space available for re-let. Selected private sector projects In the multi-user factory space, with an average 0.5m sqm of Total Region new space completing annually over 2014F-2016F, we project Factories Space vacancy levels to inch up by 1-2bps to c.13, given the (m sqm) onslaught of new supply completions over 2015F-16F. Eco-Tech @ Sunview 0.07 West Link @ AMK 0.06 Central Mandai Connection 0.05 Central Demand/Supply of Factory Space (Multi-User) Built-to-suit for HP 0.04 Central 700 16% Source: URA, DBS Bank Sqm 600 14%
500 12% Overall rentals should weaken with new supply. We expect 10% rentals in the multi-user factory space to weaken by c.5% per 400 8% annum over 2014-2015. This is due to increased competition 300 6% among the multi-user factory space from new supply, which 200 4% will place a cap on existing rentals, as landlords price their 100 2% properties attractively to retain tenants. ‐ 0%
Multi-user factory: Rental & Occupancy trends (2005 – 2016F) Demand Supply Vacancy (%) 2.50 Factory 92% Source: URA, DBS Bank S $ psf pm 90% 2.00 Based on URA statistics, we found that close to 0.3m sqm 88% or15% of total space are public sector projects by JTC and 1.50 86% HDB, which are purpose-built for selected industries like 84% Biomedical, Aerospace, FMCG and Automotive. These 1.00 82% developments are mainly aimed at either new multi-national 80% 0.50 companies or supporting small-medium enterprises. The 78% remaining private sector developments are mainly in the - 76% Central region (Kallang) and North region (Woodlands and 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 2014F 2015F 2016F Yishun) and strata-built developments. Rental (S$ psf pm) LHS Occupancy Source: URA, DBS Bank
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Industry Focus Singapore Property
Business Park subsector – Strong pre-commitments Business City Phase 2 (0.12m sqm) at Alexandra precinct, to limit downside which will complete in 2016.
Attractive spreads vs CBD. Often seen as “quasi-office” space, Upcoming supply largely located in Central part of Business Parks offer cheaper alternative office space for Singapore at One North (Buona Vista) qualified users which do not need to be located in the CBD. As 350 Sqm 30% of 3Q13, total Business Park space stood at 1.6m sqm (17.2m 300 sqft or 4% of total industrial stock). Due to high vacancy levels 25% 250 of c.18% over 2012-2013, rents of Business Park space have 20% remained fairly stagnant while office rents in the CBD have 200 risen by c.15% over the past year. Based on our estimates, 150 15% median rents are c.65% below CBD rents, which is close to 100 2009-2010 levels and we believe this to be an attractive 10% 50 enough level for potential qualifying tenants to consider. 5% -
(50) 0% Business Park rents at c.65% below CBD rents Demand Supply Vacancy (%)
(%) S$ psf/mth Source: URA, DBS Bank 66% 4.30 64% 4.10 Incoming supply & estimated pre-commitment levels 62% 3.90 3.70 Location Location GFA Pre- 60% commitment 3.50 m sqm 58% 3.30 2015 56% 3.10 Science Park Ascendas Land 0.04 100% 54% 2.90 (S’pore) 52% 2.70 Ayer Rajah (One Seagate Singapore 0.04 100% 50% 2.50 North) DBS Asia One Hub 2 A-REIT 0.01 100%
Mediapolis MediaCorp 0.08 100% Business Park Rents Spread vs CBD Office Fusionopolis (one- JTC Corp 0.09 95% Source: URA, DBS Bank north) Changi Business Park Rigel Tech 0.03 90% We have seen instances of firms that qualify to be located in 2016 business parks, relocating from the CBD and expanding into Alexandra Terrace Mapletree Business 0.12 0% newly completed/refurbished business parks in One North and City Pte Ltd Changi Business Park in recent quarters. This is a positive sign, Ayer Rajah (One SHIN Systems assets 0.02 100% in our view, as we believe this is an early indication of a North) Science Park Ascendas Land 0.05 0% possible turnaround in outlook, especially given the supply (S’pore) crunch in CBD in the coming year (please see summary of Source: DBS Bank, URA , A-REIT major tenant relocation under office section of the report). Business Park spot rents to increase by 3% in 2015. While new 33% expansion in supply; 66% pre-committed levels limit supply is supported by relatively high pre-commitment levels, downside. Close to 0.6m sqm (61m sqft) of new Business Park we believe that landlords with older properties will still face space is expected to be completed in the coming two years, pressure, given that high sector-wide vacancy is close to 16%. representing a 37% increase in supply. However, we note that However, with the sector seeing improvement in demand in pre-commitment levels is high at c.66%, where a majority of recent times, coupled with a lack of alternatives in the office new projects under construction are at emerging hubs such as space, we believe Business Park rentals might surprise on the One North/Science Park which cater to specific industries in the upside in 2015. We project rentals to turn up by c.3% p.a. life sciences and R&D industries and are built-to-suit single-user over 2015-2016. facilities. The only speculatively built project is Mapletree
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Industry Focus
Singapore Property
10. Hospitality – Renewed hope
Key Assertions Tourist arrivals for 10M14 have also been impacted by declines Recovery in Chinese tourist numbers and overall in four out of the top five markets, with Singapore, and the tourist arrivals to catalyze performance in 2015 other three being Indonesia (-1.6%: impact of Indonesian elections), Malaysia (-2.6%: drag from currency) and Australia RevPAR to turn positive despite supply (-3.9%: impact from weaker currency). This was partially offset completions, projecting a 3.6% growth in 2015 by improvement from India (+1.7% y-o-y).
CDL HT our top pick Visitor source markets for 10M14 Weak tourist arrivals in 2014 US Europe 3% 11% 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, Indonesia the likelihood of arrivals meeting the Singapore Tourism 20% Others Board’s (STB) target of 5-8% y-o-y growth to 16.3-16.8m 13% visitors seems remote. The main cause for the weaker China 12% performance has been the decline in Chinese tourist arrivals (- Japan 27.8% y-o-y for 10M14). Chinese visitors who typically visit 5% M a laysia Singapore on Southeast Asian tours have avoided the region Vietnam 8% 3% India due to the political situation in Thailand and negative reaction HK 3% 6% to the MH370 incident. Chinese visitor arrivals have also been Thailand 3% Philippines Australia impacted by the imposition of new tourism laws in China Source: STB, DBS Bank 5% 7% 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. 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 and 6m room nights. This compares to a 2.8% y-o-y decline in While tourist arrivals have been weak, this has been partially 1H14 visitor arrivals to 7.5m tourists. 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 Growth in visitor days, gross lettings and tourist arrivals underpinned by a jump in length of stay by Chinese visitors to y-o-y growth Divergence between Visitor days 4.15 days from 2.68 days in 1H13. We suspect this is a 25.0% and Gross lettings and visitor arrivals function of (i) increased quality of visitors coming to Singapore; due to increase in legnth of days 20.0% from 2.68dyas to 4.15 days and (ii) reduction in tour groups which typically stay for one to 15.0% three days. 10.0% Based on the 2Q14 STB Quarterly Tourism Focus report, the 5.0% longer time spent in Singapore resulted in 1H14 visitor days 0.0% and gross lettings rising 5.2% and 7.5% y-o-y to 28m days 2007 2008 2009 2010 2011 2012 2013 1H14 -5.0% -10.0% Visitor arrivals Visitor days Gross lettings
Source: STB, DBS Bank
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Industry Focus Singapore Property
Delay in hotel supply insufficient to prevent RevPAR Upscale and Mid Tier continues to be weak (S$) decline Average Luxury Upscale Mid-Tier Economy 2008 245.9 408.1 268.7 192.5 113.1 Despite the improvement in gross lettings, and delay in new 2009 189.6 315.9 210.3 142.0 88.4 hotel supply this year, 1,597 new rooms to be added in 2014 2010 217.9 357.0 243.5 168.1 100.6 versus projections of 2,926 new rooms earlier this year, the 2011 247.1 399.1 279.3 188.5 110.3 performance of the hospitality YTD has been weak. 2012 261.3 431.4 301.4 197.1 110.7 10M13 257.4 432.0 268.7 190.7 100.8 Postponement of new hotels into 2015/2016 Hotel Rooms New Previous target 10M14 257.9 462.2 266.4 186.0 109.0 opening opening y-o-y 0.2% 7.0% -0.9% -2.4% 8.2% date change Hotel Grand 488 2015 3Q14 Chancellor Orchard Source: STB, DBS Bank Hotel Grand Central 264 2015 3Q14
The Patina Capitol 157 2015 4Q14 With a decline in overall occupancy and flattish ADR’s, 10M14 Singapore Aqueen Hotel Little 70 2016 4Q14 RevPAR was down 0.8% y-o-y to S$221. India Source: CDREIT, DBS Bank Decline in 10M14 RevPAR
Average Luxury Upscale Mid-Tier Economy With a downturn in the Chinese arrivals largely affecting the 2008 199.2 311.1 217.2 160.4 91.7 lower-end “tour groups”, this has resulted in 10M14 2009 143.7 228.5 161.7 111.7 61.7 occupancy levels for Mid-Tier and Economy segments 2010 185.6 279.3 209.1 146.8 86.1 registering 180-bps and 36-bps drops to 85.1% and 81% respectively. Meanwhile, the luxury segment which has been 2011 213.5 320.4 243.9 164.4 94.3 strong early this year (+70bps improvement in 1H14), has 2012 226.0 351.8 264.7 170.8 94.0 suffered a dip of 80bps for 10M14. We believe this is on the 10M13 223 382 232 166 85 back of the opening of several upscale/luxury hotels in 3Q14, 10M14 221 406 234 158 88 such as Hotel Jen and One Farrer Hotel. y-o-y -0.8% 6.3% 0.7% -4.4% 3.6% change
Drag on occupancy from Mid-scale and Economy Source: STB, DBS Bank Average Luxury Upscale Mid-Tier Economy 2008 81.0% 76.2% 80.8% 83.3% 81.1% No significant improvement in last two months of 2014 2009 75.8% 72.3% 76.9% 78.7% 69.8% 2010 85.2% 78.2% 85.9% 87.3% 85.6% With a weak read-through from the latest October 2014 STB 2011 86.4% 80.3% 87.3% 87.2% 85.5% statistics, we do not expect any significant improvement in 2012 86.5% 81.5% 87.8% 86.7% 84.9% tourist arrivals or industry RevPAR. Thus, we expect 2014 to 10M13 86.7% 88.5% 86.3% 86.8% 84.6% register a 1% y-o-y decline in RevPAR to S$220 on the back of 10M14 85.9% 87.9% 87.7% 85.1% 81.0% overall occupancy of 86% and ADR of S$255.50. bps -0.8% -0.6% 1.4% -1.8% -3.6% change
Source: STB, DBS Bank
Given the backdrop of weaker occupancy, average industry daily rates (ADR) were flattish in 10M14 with the main weakness seen in the Upscale and Mid-Tier segments. The improvement in ADR for the Economy segment, we suspect is due to the lack of lower-priced tour groups.
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Expect decline in 2014 RevPAR Average room Year Occupancy Bps change rate (S$) 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 Chinese tourist arrivals in key Chinese outbound markets 2015 Japan Going into 2015, our base case calls for a recovery in tourist USA* arrivals largely on the back of a rebound in Chinese visitors. Taiwan This is underpinned by (i) negative impact from MH370 South Korea incident receding, (ii) more stable situation in Thailand, and (iii) Macau low base effect. These factors can already be seen in the latest Hong Kong Thai tourism arrival statistics, whereby there was a 67% y-o-y jump in China tourist numbers in October. Furthermore, we Malaysia* expect a rebound in Indonesian arrivals (the largest source Thailand market) as the Indonesia elections in 2014 will no longer be a Singapore drag in 2015. -50% -25% 0% 25% 50% 75% 100%
y-o-y growth Chinese tourist arrivals into Thailand and Singapore Malaysia & USA – 8M14, other countries – 10M14 y-o-y growth Source: STB, Tourism Malaysia, Thai Immigration Bureau,, Korea 80% Tourism Organization, Macau Government Tourist Office, Recovery in Chinese tourists 60% Hong Kong Tourism Board, Japan National Tourism into Thailand, expect recovery in Singapore over the next Organization, US Office of Travel & Tourism Industries, Taiwan 40% few months Tourism Bureau, DBS Bank 20% 0% Top markets for Chinese outbound tourists in 2013 Singapore, -20% Malaysia, 1.4% 1.3% Cambodia, -40% 1.7% Vietnam, Other, 1.8% 11.7% -60% USA, Thailand Singapore 2.0%Japan, 1.9% Source: Thai Immigration Bureau, Police Department, STB, DBS Bank Taiwan, Hong Kong, 3.0% 41.0%
We think a recovery in Chinese tourist figures in 2015 is Thailand, 4.1% realistic as the downturn in 2014 was not due to Chinese South Korea, Macau, tourists not going overseas. In fact, we have seen strong 4.3% 25.7% growth in other key markets that Chinese tourists visit. Source: CEIC, DBS Bank
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Industry Focus Singapore Property
Moving into 2015, besides a rebound in Chinese visitors, a Continued solid list of MICE events in 2015 recovery should be underpinned by: Event Date Association of Orthodontists (Singapore) Congress 1Q15 (i) A growing list of diverse attractions (see table below) World Low Cost Airlines Asia Pacific 2015 1Q15 which have been opened or scheduled to open in the Clinical Applications of Stem Cells 1Q15 new year. This include new cultural attractions such as 5th Annual OTC Pharma Asia Conference 1Q15 the Singapore National Gallery and facilities such as the Singapore Sports Hub which will enable Singapore to Global Security Asia 2015 (GSA 2015) 1Q15 attract additional concerts and sporting events; F+L WEEK CONFERENCE & EXHIBITION 1Q15 International Furniture Fair Singapore 1Q15 (ii) incremental additions to the annual sports calendar such as the Rugby Sevens, on top of the Formula 1 and Sweets and Bakes Asia 2015 1Q15 WTA Women’s finals. In addition, Singapore will host Coffee & Tea Industry Expo 2015 1Q15 th the 28 SEA Games in June which is expected to attract Café Asia 2015 1Q15 c.7,000 athletes; and Last Mile Fulfilment Asia 2015 1Q15 (iii) A solid list of MICE events despite 2015 missing some BioPharma Asia Convention 2015 1Q15 of the major bi-annual conferences Tyrexpo Asia 2015 1Q15 Black Hat Asia 1Q15 New upcoming attractions Opening Attraction Category RehabTech Asia 2015 1Q15 date 37th Asia Pacific Dental Congress 2Q15 Jun-14 Singapore Sports Hub Sports MTA 2015 2Q15 Sep-14 Karting Track @ Singapore Turf Club Sports INTERPOL World 2Q15 2015 Sisters' Island Marine Park Nature CBME South East Asia - Children, Baby, Maternity Expo 2Q15 2020 Expansion of Singapore Zoo Nature Sea Asia 2015 2Q15 2020 Integration of Jurong Bird Park to Nature Cards & Payments Asia 2015 2Q15 Mandai area Oct-14 Madame Tussauds Singapore Family & Singapore Yacht Show 2Q15 Entertainment IMDEX Asia 2015 2Q15 2015 KidZania Family & Entertainment Advances in qPCR & dPCR 2Q15 2015 Reopening of Battlestar Galactica at Family & Asia Mining Congress 2015 2Q15 Universal Studios Singapore Entertainment 2019 Redevelopment of six precincts in Family & Aquarama 2015 2Q15 Sentosa Entertainment Pet Asia 2015 2Q15 1Q15 National Gallery Singapore Arts & Culture BroadcastAsia 2015 2Q15 1Q15 Lee Kong Chian Natural History Arts & Culture Museum CommunicAsia2015 2Q15 2015 Singapore Pinacothèquede Paris Arts & Culture 6th Redesigning Pedagogy International Conference 2Q15 Source: Press reports, CDREIT, STB, DBS Bank 2nd Annual Healthcare Facilities Asia 2Q15 9th Annual Health Insurance Asia 2Q15 Incremental additions to annual sporting calendar Singapore International Jewelry Expo 2015 3Q15 Date Existing annual sporting events Type International Bioprinting Congress 3Q15 Sep-15 Formula 1 Motorsport Mostra Convegno Expocomfort (MCE) Asia 2015 3Q15 Oct-15 WTA women's final Tennis Build Eco Xpo (BEX) Asia 2015 3Q15
Fire & Disaster Asia 2015 4Q15 Date New sports events Type 2015 Singapore Sevens Rugby Rugby Safety & Security Asia 2015 4Q15 Jun-15 SEA games Multiple sports International Facility Management Expo 2015 4Q15 Sep-15 FINA World Junior Swimming Swimming LED+Light Asia 2015 4Q15 Championships GreenUrbanScape Asia 2015 4Q15 Dec-15 ASEAN Para Games Multiple sports Source: yoursingapore.com, DBS Bank Source: Formula1.com, WTA, press reports, DBS Bank
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Singapore Property
In addition, as Singapore is celebrating its 50th year anniversary, Furthermore, the attractiveness of Singapore for the two various events throughout the year should stimulate interest largest source markets of Indonesia and China should be aided and raise awareness of Singapore as a holiday destination. 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 Recovery in Chinese and Indonesian tourist arrivals will be lower than that experienced in prior periods (e.g. 2004 Visitor arrivals (m) and 2010) following a downturn in the prior year. y-o-y y-o-y y-o-y Year Indonesia growth China growth Total growth 2008 1.8 -10.0% 1.1 -3.2% 10.1 -1.6% Historical recovery in tourist arrivals following a down 2009 1.7 -1.1% 0.9 -13.2% 9.7 -4.3% year (y-o-y growth) Year Total visitors 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% 2001 -2.2% 2012 2.8 9.5% 2.0 28.9% 14.5 10.1% 2002 0.6% 2013 3.1 8.9% 2.3 11.6% 15.6 7.4% 2003 -19.0% 2014F 3.1 1.0% 1.7 -25.0% 15.3 -2.0% 2004 35.9% 2015F 3.3 5.0% 1.9 12.5% 16.0 4.6% 2005 7.4% 2016F 3.4 5.0% 2.2 15.0% 16.8 5.3% 2008 -1.6% 2017F 3.6 5.0% 2.4 10.0% 17.6 4.8% 2009 -4.3% Source: STB, DBS Bank 2010 20.2% 2011 13.2% Source: STB, DBS Bank Extended Chinese stay Length of stay (days) This is because of the increased competition from other Year Indonesia China Total markets. In particular, Japan is becoming more attractive. The 2008 3.56 4.46 3.96 JPY has depreciated by 11% and 12% versus the CNY and IDR 2009 3.50 4.01 3.96 respectively. Furthermore, Japan has waived visa requirements 2010 3.35 3.72 3.86 for Indonesian nationals from 1 Dec 2014, should they hold an 2011 3.23 3.30 3.73 2012 2.97 2.96 3.54 ePassport and register before arriving in Japan. There has also 2013 2.77 3.02 3.48 been easing of entry requirements for Chinese citizens into 2014F 2.77 4.10 3.69 Europe. 2015F 2.77 4.05 3.70 2016F 2.77 4.05 3.71 The increased competitive landscape is partially mitigated by 2017F 2.77 4.05 3.73 expectations of longer length of stay for Chinese tourists. In Source: STB, DBS Bank 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 All in, we have penciled in a 5% p.a. increase in tourist arrivals more price-sensitive tour/group tourists potentially going to from Indonesia over the next three years. For Chinese tourists, destinations such as Japan, we believe the length of stay will we expect a 12.5% y-o-y improvement in 2015, followed by stay elevated though dip slightly to 4.05 days from 4.1 days, as an acceleration to 15% as the full effects from the downturn Singapore continues to attract the higher “quality” or in 2014 wears off. This should translate into a 4.6%, 5.3% and spending tourists. 4.8% y-o-y increase in tourist arrivals in 2015, 2016 and 2017 respectively.
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Industry Focus Singapore Property
Stronger rebound in visitor days A large proportion of the new supply (c.60%) in 2015 is largely Visitor days (m) concentrated in the upscale/luxury segment. Meanwhile, in the y-o-y y-o-y y-o-y prime Orchard, there is significant increase in new hotel supply, Year Indonesia growth China growth Total growth equivalent to 9.1% of estimated 2014 supply. This is higher 2008 6,279 -1.1% 4,812 10.0% 40.0 7.3% than the 5.7% growth for the overall market in 2015. 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% Breakdown of new supply based on segment 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% Number Upscale % of % of % of 2013 8,543 1.2% 6,846 13.7% 54.2 5.6% of / new Mid- new new 2014F 8,628 1.0% 6,980 1.9% 56.2 3.7% Year rooms Luxury supply Tier supply Economy supply 2015F 9,060 5.0% 7,757 11.1% 59.0 4.9% 2014 1597 653 41% 707 44% 237 15% 2016F 9,513 5.0% 8,920 15.0% 62.4 5.8% 2015 3229 1948 60% 1212 38% 69 2% 2017F 9,988 5.0% 9,812 10.0% 65.7 5.3% Source: STB, DBS Bank 2016 3498 1208 35% 1789 51% 501 14% 2017 2217 1031 47% 1186 53% 0 0% Source: Horwath HTL, CDREIT, DBS Bank Increase in 2015 new hotel supply Due to the delay in the opening of several hotels in 2014, 2015 Significant growth in new hotel supply in Orchard Road precinct will experience a 5.7% increase in hotel rooms versus 2.9% (% of existing supply) uplift in 2014. This should temper an expected improvement Overall Singapore demand in 2015. Year Orchard area market 2013 2.9% 6.7% Upcoming hotel supply 2014F 6.4% 2.9%
Rooms 2015F 9.1% 5.7% 70,000 2016F 0.0% 5.8%
65,000 2,217 2017F 2.4% 3.5% 3,498 Source: CBRE, Horwath HTL, CDREIT, DBS Bank 60,000 3,229 55,000 1,597 51,579 50,000 45,000 2013 2014F 2015F 2016F 2017F Hotel rooms Supply Expected net additions Source: 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
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Industry Focus
Singapore Property
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
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Industry Focus Singapore Property
Modest 3.6% growth in 2015 RevPAR With a tighter demand supply dynamic, we project a 3% Going into 2015, we forecast a 50-bps improvement in increase in average room rate (ARR) to S$263, which translates occupancy to 86.6%. This is driven by gross lettings growing at to 3.6% growth RevPAR to S$228. 4.9% y-o-y, as (i) the average length of stay expands to 3.7 days from 3.69 and (ii) total visitor arrivals jumps 4.6% to 16m visitors. In contrast, available room nights are estimated to grow at a slower 4.3%.
2014-2017F Occupancy, ADR and RevPAR forecasts Demand Length of stay Gross lettings Year Visitor arrivals (m) y-o-y growth (days) Visitor days (m) y-o-y growth (m) y-o-y growth 2008 10.1 -1.6% 3.96 40.0 7.3% 8.5 -7.5% 2009 9.7 -4.3% 3.96 38.4 -4.1% 8.2 -3.0% 2010 11.6 20.2% 3.86 44.9 17.1% 9.6 16.9% 2011 13.2 13.2% 3.73 49.1 9.3% 10.7 11.5% 2012 14.5 10.1% 3.54 51.4 4.6% 10.8 0.9% 2013 15.6 7.4% 3.48 54.2 5.6% 11.3 4.9% 2014F 15.3 -2.0% 3.69 56.2 3.7% 12.0 6.3% 2015F 16.0 4.6% 3.70 59.0 4.9% 12.6 4.9% 2016F 16.8 5.3% 3.71 62.4 5.8% 13.4 5.8% 2017F 17.6 4.8% 3.73 65.7 5.3% 14.1 5.3%
Supply Hotel industry performance Total Available Average number of y-o-y Room y-o-y Bps room rate y-o-y RevPar y-o-y Year rooms growth Nights (m) growth Occupancy change (S$) growth (S$) 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
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Industry Focus
Singapore Property
Shape of 2015 recovery subject to pace of Chinese visitor Under our bear case, if there is no recovery at all (i.e. zero rebound growth) as Chinese tourists gravitate to other markets and spend 3.5 days (average over the last few years), we see a The performance of the Singapore hospitality market in 2015 is significant 7.4% drop in RevPAR. extremely sensitive to whether Chinese tourists return and at what pace, as well as the average number of days they spend In contrast, in the event Chinese arrivals bounce 25% in line in Singapore. with past recoveries and the average length of stay remains at 4.15 days, in line with 1H14 performance, the Singapore In our base case, as discussed earlier, we see a 12.5% uplift in hospitality market will experience a boom. Occupancy should tourists arrivals, lower than prior recovery periods due to rise 220bps to 88.2% which should translate into 10% and increased competition from other markets. Under this scenario 12.6% rise in ARR and RevPAR. we see a 3.6% increase in RevPAR to S$228.
Bear, Base and Bull case scenarios China tourist arrival growth Overall tourist arrival growth China avg. length of stay (days) Year Bear case Base case Bull case Bear case Base case Bull case Bear case Base case Bull case 2015F 0.0% 12.5% 25.0% 1.7% 4.6% 6.8% 3.50 4.05 4.15 2016F 15.0% 15.0% 15.0% 5.5% 5.3% 6.0% 3.50 4.05 4.15 2017F 10.0% 10.0% 10.0% 5.1% 4.8% 5.4% 3.50 4.05 4.15
Occupancy ARR (S$) 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
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Industry Focus Singapore Property
11. Charts – S-REIT (Yield and Price to Book)
Ascendas Hospitality Trust Historical Yield Spread Ascendas Hospitality Trust Historical P/BV 10.0% 1.4 9.0% 1.3 8.0% 1.2 7.0% 6.0% 1.1 5.0% 1.0 4.0% 0.9 3.0% 0.8 2.0% 0.7 1.0% 0.6 0.0% 2012 2013 2014 0.5 ASHT Yield Spread ASHT Yield Mean 2012 2013 2014 -1 SD +1 SD ASHT P/BV Mean +1 SD -1 SD Ascendas REIT Historical Yield Spread Ascendas REIT Historical P/BV 14.0% 2.5
12.0% 2.0 10.0%
8.0% 1.5
6.0% 1.0 4.0% 0.5 2.0%
0.0% 0.0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 AREIT Yield Spread AREIT Yield Mean Yield AREIT P/BV Mean +1 SD -1 SD -1 SD +1 SD Ascendas India Trust Historical Yield Spread Ascendas India Trust Historical P/BV 18.0%
2.5 16.0% 14.0% 2.0 12.0%
10.0% 1.5 8.0% 1.0 6.0% 4.0% 0.5 2.0%
0.0% 0.0 2007 2008 2009 2010 2011 2012 2013 2014 2007 2008 2009 2010 2011 2012 2013 2014 AIT Yield Spread AIT Yield Mean Yield AIT P/BV Mean +1 SD -1 SD -1 SD +1 SD
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Industry Focus
Singapore Property
Ascott REIT Historical Yield Spread Ascott REIT Historical P/BV 25.0% 1.8 1.6 20.0% 1.4 1.2 15.0% 1.0 0.8 10.0% 0.6
0.4 5.0% 0.2
0.0 0.0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2006 2007 2008 2009 2010 2011 2012 2013 2014
Ascott Yield Spread Ascott Yield Mean Yield Ascott P/BV Mean +1 SD -1 SD -1 SD +1 SD CapitaMall Trust Historical Yield Spread CapitaMall Trust Historical P/BV 2.5 14.0% 12.0% 2.0 10.0%
8.0% 1.5 6.0%
1.0 4.0%
2.0% 0.5 0.0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0.0 CMT Yield Spread CMT Yield Mean Yield 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 -1 SD +1 SD CMT P/BV Mean +1 SD -1 SD
CapitaCommercial Trust Historical Yield Spread CapitaCommercial Trust Historical P/BV 25.0% 1.8
1.6 20.0% 1.4
15.0% 1.2 1.0 10.0% 0.8 0.6 5.0% 0.4 0.0% 0.2 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0.0 -5.0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 CCT Yield Spread CCT Yield Mean Yield -1 SD +1 SD CCT P/BV Mean +1 SD -1 SD
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Industry Focus Singapore Property
CapitaRetail China Trust Historical Yield Spread CapitaRetail China Trust Historical P/BV 16.0% 3.5
14.0% 3.0 12.0% 2.5 10.0% 2.0 8.0%
6.0% 1.5
4.0% 1.0 2.0% 0.5 0.0% 2006 2007 2008 2009 2010 2011 2012 2013 201 0.0 -2.0% 2006 2007 2008 2009 2010 2011 2012 2013 2014
CRCT Yield Spread CRCT Yield Mean Yield CRCT P/BV Mean +1 SD -1 SD -1 SD +1 SD CDL Hospitality Trust Historical Yield Spread CDL Hospitality Trust Historical P/BV 25.0% 3.0
2.5 20.0% 2.0 15.0%
1.5 10.0%
1.0 5.0% 0.5 0.0% 2007 2008 2009 2010 2011 2012 2013 2014 0.0 2007 2008 2009 2010 2011 2012 2013 2014 -5.0% CDREIT Yield Spread CDREIT Yield Mean Yield CDREIT P/BV Mean +1 SD -1 SD -1 SD +1 SD Cambridge REIT Historical Yield Spread Cambridge REIT Historical P/BV 35.0% 1.8
1.6 30.0% 1.4 25.0% 1.2 20.0% 1.0
15.0% 0.8
10.0% 0.6 0.4 5.0% 0.2 0.0% 0.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2006 2007 2008 2009 2010 2011 2012 2013 2014 Cambridge Yield Spread Cambridge Yield Mean Yield -1 SD Cambridge P/BV Mean +1 SD -1 SD +1 SD
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Industry Focus
Singapore Property
Cache Historical Yield Spread Cache Historical P/BV 10.0% 1.5
9.0% 1.4 8.0% 1.3 7.0%
6.0% 1.2
5.0% 1.1 4.0% 1.0 3.0%
2.0% 0.9 1.0% 0.8 0.0% 2010 2011 2012 2013 2014 0.7 Cache Yield Spread Cache Yield Mean Yield 2010 2011 2012 2013 2014 Cache P/BV Mean +1 SD -1 SD -1 SD +1 SD
Croesus Retail Trust Historical Yield Spread Croesus Retail Trust Historical P/BV 12.0% 1.20
1.15 10.0% 1.10 1.05 8.0% 1.00 0.95 6.0% 0.90 0.85 4.0% 0.80
0.75 2.0% 0.70
0.0% 2013 2014 Jul-2014 Jul-2013 Jan-2014 Jun-2014 Jun-2013 Oct-2014 Feb-2014 Croesus Yield Spread Croesus Yield Oct-2013 Apr-2014 Sep-2014 Sep-2013 Dec-2014 Dec-2013 Nov-2014
Nov-2013 Aug-2014 Aug-2013 Mar-2014 Mean Yield -1 SD May-2014 +1 SD Croesus P/BV Mean +1 SD -1 SD Far East Hospitality Trust Historical Yield Spread Far East Hospitality Trust Historical P/BV 1.3 8.0%
7.0% 1.2
6.0% 1.1 5.0%
4.0% 1.0 3.0% 0.9 2.0%
1.0% 0.8 0.0% 2012 2013 2014 0.7 FEHT Yield Spread FEHT Yield Mean 2012 2013 2014 FEHT P/BV Mean +1 SD -1 SD -1 SD +1 SD
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Industry Focus Singapore Property
Frasers Commercial Trust Historical Yield Spread Frasers Commercial Trust Historical P/BV 18.0% 1.2 16.0%
14.0% 1.0
12.0% 0.8 10.0% 8.0% 0.6
6.0% 0.4 4.0% 2.0% 0.2
0.0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 0.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 FCOT Yield Spread FCOT Yield Mean FCOT P/BV Mean +1 SD -1 SD -1 SD +1 SD Frasers Centrepoint Trust Historical Yield Spread Frasers Centrepoint Trust Historical P/BV 14.0% 2.0
12.0% 1.8 1.6 10.0% 1.4 8.0% 1.2 1.0 6.0% 0.8 4.0% 0.6 0.4 2.0% 0.2 0.0% 0.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2006 2007 2008 2009 2010 2011 2012 2013 2014 FCT Yield Spread FCT Yield Mean Yield -1 SD +1 SD FCT P/BV Mean +1 SD -1 SD
K-REIT Historical Yield Spread K-REIT Historical P/BV
25.0% 1.8 1.6 20.0% 1.4
15.0% 1.2
1.0 10.0% 0.8
0.6 5.0% 0.4 0.0% 0.2 2006 2007 2008 2009 2010 2011 2012 2013 2014 0.0 -5.0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 KREIT Yield Spread KREIT Yield Mean Yield -1 SD +1 SD KREIT P/BV Mean +1 SD -1 SD
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Industry Focus
Singapore Property
Mapletree Industrial Trust Historical Yield Spread Mapletree Industrial Trust Historical P/BV 8.0% 1.5
7.0% 1.4 6.0% 1.3 5.0%
4.0% 1.2 3.0% 1.1 2.0%
1.0% 1.0
0.0% 2011 2012 2013 2014 0.9 MINT Yield Spread MCT Yield Mean Yield 2010 2011 2012 2013 2014 MINT P/BV Mean +1 SD -1 SD -1 SD +1 SD
Mapletree Logistic Trust Historical Yield Spread Mapletree Logistic Trust Historical P/BV 18.0% 2.5
16.0% 14.0% 2.0 12.0% 1.5 10.0%
8.0% 1.0 6.0%
4.0% 0.5 2.0%
0.0% 0.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 MLT Yield Spread MLT Yield Mean Yield -1 SD +1 SD MLT P/BV Mean +1 SD -1 SD
Mapletree Commercial Trust Historical Yield Spread Mapletree Commercial Trust Historical P/BV 8.0% 1.5
7.0% 1.4 6.0% 1.3 1.2 5.0% 1.1 4.0% 1.0 3.0% 0.9 2.0% 0.8 1.0% 0.7 0.0% 0.6 2011 2012 2013 2014 2011 2012 2013 2014 MCT Yield Spread MCT Yield Mean Yield MCT P/BV Mean +1 SD -1 SD -1 SD +1 SD
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Industry Focus Singapore Property
Mapletree Greater China Commercial Trust Historical Mapletree Greater China Commercial Trust Historical Yield Spread P/BV 9.0% 1.3
8.0% 1.2
7.0% 1.1 6.0% 1.0 5.0% 0.9 4.0% 0.8 3.0% 0.7 2.0%
Jul-13 Jul-14 Jul-2013 Jul-2014 Jan-14 Jun-13 Jun-14 Feb-14 Oct-13 Oct-14 Apr-13 Apr-14 Sep-13 Sep-14 Dec-13 Dec-14 Nov-13 Nov-14 Jan-2014 Jun-2013 Jun-2014 Aug-13 Aug-14 Mar-13 Mar-14 Oct-2013 Feb-2014 Oct-2014 May-13 May-14 Apr-2013 Sep-2013 Apr-2014 Sep-2014 Dec-2013 Dec-2014 Nov-2013 Nov-2014 Mar-2013 Mar-2014 Aug-2013 Aug-2014 May-2013 May-2014 MAGIC Yield Spread MAGIC Yield Mean MAGIC P/BV Mean +1 SD -1 SD -1 SD +1 SD
OUE Hospitality Trust Historical Yield Spread OUE Hospitality TrustHistorical P/BV 9.0% 1.0 8.0% 1.0 7.0% 6.0% 1.0
5.0% 1.0 4.0% 0.9 3.0%
2.0% 0.9
1.0% 0.9 0.0% 2013 2014 0.9 OUEHT Yield Spread OUEHT Yield Mean Yield 2013 2014 -1 SD +1 SD OUEHT P/BV Mean +1 SD -1 SD
Parkway Life REIT Historical Yield Spread Parkway Life REIT Historical P/BV 12.0% 1.8
1.6 10.0% 1.4 8.0% 1.2
6.0% 1.0
0.8 4.0% 0.6
2.0% 0.4 0.2 0.0% 2008 2009 2010 2011 2012 2013 2014 0.0 PREIT Yield Spread PREIT Yield Mean 2008 2009 2010 2011 2012 2013 2014 -1 SD +1 SD PREIT P/BV Mean +1 SD -1 SD
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Industry Focus
Singapore Property
Religare Health Trust Historical Yield Spread Religare Health Trust Historical P/BV 10.0% 1.20
9.0% 1.15 8.0% 1.10 7.0% 6.0% 1.05
5.0% 1.00 4.0% 0.95 3.0% 0.90 2.0% 1.0% 0.85 0.0% 0.80
RHT Yield Spread RHT Yield Mean Yield -1 SD +1 SD RHT P/BV Mean +1 SD -1 SD
Soilbuild Business Space REIT Historical Yield Spread Soilbuild Business Space REIT Historical P/BV 9.0% 1.05
8.0%
7.0% 1.00
6.0% 0.95 5.0% 4.0% 0.90 3.0% 2.0% 0.85 1.0% 0.0% 0.80
SBREIT Yield Spread SBREIT Yield Mean Yield SBREIT P/BV Mean +1 SD -1 SD -1 SD +1 SD SPH REIT Historical Yield Spread SPH REIT Historical P/BV 6.5% 1.20 6.0% 1.18 1.16 5.5% 1.14 5.0% 1.12
4.5% 1.10
1.08 4.0% 1.06
3.5% 1.04
3.0% 1.02 1.00 2.5% 2013 2014 2013 2014 SPH REIT Yield Spread SPH REIT Yield SPH REIT P/BV Mean +1 SD -1 SD Mean Yield -1 SD
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Industry Focus Singapore Property
Starhill Global REIT Historical Yield Spread Starhill Global REIT Historical P/BV 20.0% 1.2 18.0% 1.0 16.0% 14.0% 0.8 12.0%
10.0% 0.6
8.0% 0.4 6.0% 4.0% 0.2 2.0% 0.0% 0.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 SGREIT Yield Spread SGREIT Yield Mean Yield SGREIT P/BV Mean +1 SD -1 SD -1 SD +1 SD
Suntec REIT Historical Yield Spread Suntec REIT Historical P/BV 25.0% 1.6
1.4 20.0% 1.2
1.0 15.0% 0.8 10.0% 0.6 0.4 5.0% 0.2 0.0% 0.0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Suntec Yield Spread Suntec Yield Mean Suntec P/BV Mean +1 SD -1 SD -1 SD +1 SD
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Industry Focus
Singapore Property
12. Charts – Developers (Price to Book and Price to RNAV )
CapitaLand P/RNAV CapitaLand P/Bk NAV 60% 2.5
40% 2.0 20% 1.5 0%
-20% 1.0
-40% 0.5 -60% -80% 0.0
CAPL Disc to RNAV Mean -1 SD +1 SD CAPL P/Bk NAV Mean +1 SD -1 SD City Developments P/RNAV City Developments P/NAV 140% 2.5
120% 100% 2.0 80% 60% 1.5 40% 20% 0% 1.0 -20% -40% 0.5 -60% -80% 0.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 CIT P/Bk NAV Mean +1 SD -1 SD CIT Disc to RNAV Mean -1 SD +1 SD Wingtai P/RNAV Wingtai P/NAV 80% 1.8
60% 1.6 40% 1.4
20% 1.2
0% 1.0
-20% 0.8
-40% 0.6
-60% 0.4 -80% 0.2
0.0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 200320042005200620072008200920102011201220132014 Wingtai Disc to RNAV Mean -1 SD +1 SD WINGT P/Bk NAV Mean +1 SD -1 SD
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Industry Focus Singapore Property
UOL P/RNAV UOL P/NAV 20% 1.4 10% 0% 1.2
-10% 1.0 -20%
-30% 0.8
-40% -50% 0.6 -60% 0.4 -70% -80% 0.2 -90% 0.0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
UOL Disc to RNAV Mean -1 SD +1 SD UOL P/Bk NAV Mean +1 SD -1 SD
Wheelock Properties P/RNAV Wheelock Properties P/NAV 2.5 40% 20% 2.0
0% 1.5 -20%
-40% 1.0 -60% 0.5 -80%
-100% 0.0
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 WP P/Bk NAV Mean +1 SD -1 SD GLP P/RNAV GLP P/NAV 0% 4.0
-5% 3.5 -10% 3.0 -15% 2.5 -20% 2.0 -25%
-30% 1.5
-35% 1.0
-40% 0.5 -45% 2010 2011 2012 2013 2014 0.0 2010 2011 2012 2013 2014 GLP Disc to RNAV Mean -1 SD +1 SD GLP P/Bk NAV Mean +1 SD -1 SD
Page 69
Industry Focus
Singapore Property
Property Developers P/RNAV Property Developers P/NAV 80% 2.5
60% 2.0 40% 20% 1.5 0% -20% 1.0 -40% -60% 0.5
-80%
-100% 0.0
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 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 P/Bk NAV Mean -1 SD +1 SD
Page 70
Industry Focus Singapore Property
Stock Profiles
Page 71
Industry Focus Ascendas REIT
Bloomberg: AREIT SP | Reuters: AEMN.SI Refer to important disclosures at the end of this report
BUY S$2.37 STI : 3,281.95 Key things to watch out for: Aperia to drive growth; AEIs to add value Price Target : 12-Month S$ 2.49 Acquisitions still highly selective, although Sponsor has Potential Catalyst: Acquisitions / asset redevelopment >S$2bn of assets that could be injected Analyst Improving take up at Changi Business Park, as spread Derek TAN +65 6682 3716 between office and business park rents widen [email protected] Investment Thesis Rachael TAN +65 6682 3713 A leader in Singapore’s industrial market. A-REIT is one of the largest [email protected] industrial landlords in Singapore with a market share of around 38%. Given its size and market leadership, the REIT is typically a price- setter. Price Relative S$ Relative Index Diversified customer base. Derives its income from a diverse source of
3.0 tenants which range from electronics, F&B, logistics to info- 204 2.8 184 communications. Hence, A-REIT is not over-reliant on the 2.6 164 performance of any industrial sub-sector. A-REIT s leases have a fairly 2.4 ’ 144 2.2 long average lease expiry profile of close to 3 years, meaning that 2.0 124 only a portion of its income will be renewed every year, thus further 1.8 104 reducing refinancing risk. 1.6 84 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Strong sponsor support. Sponsor Ascendas Group, a master-planner Ascendas REIT (LHS) Relative STI INDEX (RHS) and regional developer of industrial properties, provides a visible growth path through a right of first refusal to acquire its assets and is Forecasts and Valuation also a lender of last resort.
FY Mar (S$ m) 2014A 2015F 2016F 2017F Risks Gross Revenue 614 668 694 699 Interest rate risk Net Property Inc 436 470 486 491 Any increase in interest rates will result in higher interest payments, Total Return 482 341 350 354 Distribution Inc 339 353 363 366 which will reduce income available for distribution and result in lower EPU (S cts) 14.6 14.2 14.6 14.7 distribution per unit (DPU) to unitholders. EPU Gth (%) 24 (3) 3 1 DPU (S cts) 14.2 14.7 15.1 15.2 Economic risk DPU Gth (%) 4 3 3 1 A deterioration in the economic outlook could have a negative impact NAV per shr (S cts) 201.8 201.0 200.2 199.4 PE (X) 16.2 16.7 16.3 16.1 on industrial rents and occupancies as companies cut back production Distribution Yield (%) 6.0 6.2 6.4 6.4 and require less space; industrial rents have a strong correlation with P/NAV (x) 1.2 1.2 1.2 1.2 GDP growth. Aggregate Leverage (%) 29.6 33.9 34.1 34.3 ROAE (%) 7.4 7.0 7.3 7.3 Valuation Our DCF-based TP of S$2.49 is maintained. Stock offers attractive forward yields of 6.1%-6.3%. Maintain BUY.
At A Glance Distn. Inc Chng (%): - - Issued Capital (m shrs) 2,406 Consensus DPU (S cts): 15.4 15.7 Mkt. Cap (S$m/US$m) 5,702 / 4,276 Other Broker Recs: B: 12 S: 3 H: 11 Major Shareholders
ICB Industry : Real Estate Ascendas Pte Ltd (%) 17.1 ICB Sector: Real Estate Investment Trust Blackrock (%) 6.0 Principal Business: AREIT's portfolio focussed on business space and Matthews International Capital (%) 5.1 industrial properties. Free Float (%) 71.8 Source of all data: Company, DBS Bank, Bloomberg Finance L.P Avg. Daily Vol.(‘000) 8,101
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Industry Focus Ascendas REIT
Income Statement (S$ m) Net Property Income and Margins FY Mar 2013A 2014A 2015F 2016F 2017F S$ m 500 Gross revenue 576 614 668 694 699 450 76.6% Property expenses (167) (178) (197) (207) (208) 400 350 74.6% Net Property Income 409 436 470 486 491 300 Other Operating (45) (41) (45) (47) (47) 250 72.6% 200 70.6% Other Non Opg (Exp)/Inc (1) 3 0 0 0 150 Net Interest (Exp)/Inc (99) (36) (84) (89) (89) 100 68.6% 50 Exceptional Gain/(Loss) 0 12 0 0 0 0 66.6% Net Income 264 374 341 351 354 2013A 2014A 2015F 2016F 2017F Tax 0 (23) 0 0 0 Net Property Income Net Property Income Margin % 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 Earnings driven by
Dist. Payout Ratio (%) 100.0 100.0 100.0 100.0 100.0 completion of Aperia, and
Net Prop Inc Margins (%) 71.0 71.1 70.4 70.1 70.2 acquisition of Hyflux Building 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 7.8 6.6 6.8 6.8 6.8 fees to sales %) 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
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Industry Focus
Ascendas REIT
Quarterly / Interim Income Statement (S$ m) Net Property Income and Margins
FY Mar 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015 120 73%
Gross revenue 152 154 157 163 165 115 72% Property expenses (45) (46) (44) (47) (50) 110 71%
Net Property Income 107 109 112 116 115 105 70% Other Operating (10) (11) (10) (11) (11) 100 69% Other Non Opg (Exp)/Inc (6) 0 (3) 3 14 Net Interest (Exp)/Inc (15) 8 (47) (23) (20) 95 68% Exceptional Gain/(Loss) 0 0 5 2 (12) 90 67% Net Income 75 106 193 87 86 1Q2013 2Q2013 3Q2013 4Q2013 1Q2014 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015 Tax 0 0 (22) (1) (1) Net Property Income Net Property Income Margin % 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) DPU of 7.3Scts for 1H15 Net Inc Gth (%) (43) 40 62 (50) (1) comprises 51% of our full Net Prop Inc Margin (%) 70.6 70.3 71.7 71.3 69.6 year estimates Dist. Payout Ratio (%) 100.0 100.0 100.0 100.0 100.0 Source: Company, DBS Bank
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Industry Focus Ascendas REIT
Balance Sheet (S$ m) Aggregate Leverage FY Mar 2013A 2014A 2015F 2016F 2017F
Investment Properties 6,599 6,923 7,424 7,434 7,444 35.0%
Other LT Assets 255 290 290 290 290 30.0% Cash & ST Invts 20 66 82 84 82 Inventory 0 0 0 0 0 25.0% Debtors 47 66 51 53 53 20.0% Other Current Assets 38 13 13 13 13 15.0% Total Assets 6,959 7,357 7,860 7,874 7,883 10.0% 2013A 2014A 2015F 2016F 2017F 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 Investment properties Non-Cash Wkg. Capital (121) (82) (122) (126) (127) boosted by acquisition Net Cash/(Debt) (1,960) (2,111) (2,585) (2,603) (2,625) of Hyflux Building and Aperia 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) Distribution Paid / Net Operating CF FY Mar 2013A 2014A 2015F 2016F 2017F
Pre-Tax Income 264 374 341 351 354 1.0 Dep. & Amort. 1 1 0 0 0 0.9 Tax Paid 0 (1) (2) 0 0 0.8 Associates &JV Inc/(Loss) 0 0 0 0 0 0.7 Chg in Wkg.Cap. (18) 4 41 4 1 0.6 Other Operating CF 128 29 0 0 0 0.5 0.4 Net Operating CF 375 407 380 354 355 0.3 Net Invt in Properties 0 0 0 0 0 2013A 2014A 2015F 2016F 2017F 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 REIT to embark on a New units issued 705 0 0 0 0 series of Other Financing CF (95) (98) 0 0 0 developments/AEIs
Net Financing CF (119) (226) 137 (343) (346) worth S$129m, which will sequentially add to Currency Adjustments 0 0 0 0 0 earnings in the coming Chg in Cash 0 46 16 2 (2) quarters
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
Page 75
Industry Focus CapitaLand
Bloomberg: CAPL SP | Reuters: CATL.SI Refer to important disclosures at the end of this report
BUY S$3.24 STI : 3,281.95 Key things to watch out for: Asset re-cycling of stabilised properties into REITs as re- Price Target : 12-month S$ 3.84 rating catalysts Potential Catalyst: Asset recycling Loosening of HPR restrictions in China a positive for its China residential projects Analyst Derek TAN +65 6682 3716 Deployment of capital into new projects in its core focus [email protected] 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 Price Relative would underpin its long-term ROE objective of 8-12%. Plans to S$ Relative Index launch new projects in Singapore as well as to continue to market
203 4.0 residential projects in China provide forward earnings visibility, while 183 a strong balance sheet with low gearing of 34% would position them 3.5 163 143 well for future potential acquisitions. 3.0 123 103 2.5 83 Ascott Group 2.0 63 Growth is accelerating from an expected doubling its inventory to Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 80,000 units by 2020, underpinned by a new strategic relationship in CapitaLand (LHS) Relative STI INDEX (RHS) Quest (20% stake, to invest A$500m in Quest's pipeline in Australia over five years). Forecasts and Valuation
FY Dec (S$ m) 2013A 2014F 2015F 2016F Capital recycling Turnover 3,977 3,158 3,148 3,307 We see re-rating catalysts emerging from the potential capital EBITDA 1,444 1,649 1,613 1,530 recycling of mature assets in its portfolio (malls/service residences in Pre-tax Profit 1,354 1,292 1,269 1,051 Singapore/China) to its REITs. 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 Risks EPS Pre Ex. (S cts) 12.4 17.9 18.4 16.8 Slowdown in Asian economies EPS Gth (%) (9) (10) 14 (18) The risk to our view is a possible slowdown in Asian economies, EPS Gth Pre Ex (%) (32) 45 3 (9) which could result in slower demand for housing and private Diluted EPS (S cts) 27.0 24.3 27.8 22.7 consumption expenditure and retail sales. This in turn could result in 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 slower-than-expected projections. PE (X) 16.2 18.1 15.8 19.3 PE Pre Ex. (X) 26.1 18.1 17.6 19.3 Valuation P/Cash Flow (X) 26.4 nm nm nm We maintain our BUY recommendation on CapitaLand as its EV/EBITDA (X) 16.3 16.6 17.9 20.0 operations in Singapore and China residential continue to grow. With Net Div Yield (%) 2.5 2.2 2.3 2.1 a streamlined organisational structure, the group is more nimble in P/Book Value (X) 0.9 0.8 0.8 0.8 Net Debt/Equity (X) 0.3 0.5 0.6 0.6 executing on opportunities (gearing of 0.6x) and also to potentially ROAE (%) 5.5 4.7 5.2 4.1 recycle capital either through its REITs/funds which would be catalysts towards closing the RNAV gap. Maintain Buy with TP of S$3.84, Earnings Rev (%): - - - pegged at a 30% discount to RNAV. Consensus EPS (S cts): 16.6 17.8 21.1 Other Broker Recs: B: 22 S: 0 H: 4
ICB Industry : Real Estate At A Glance Issued Capital (m shrs) 4,259 ICB Sector: Real Estate
Principal Business: Residential, commercial and industrial property Mkt. Cap (S$m/US$m) 13,798 / 10,349 owner and developer. Major Shareholders Temasek Holdings Pte Ltd (%) 39.5 Source of all data: Company, DBS Bank, Bloomberg Finance L.P Blackrock (%) 6.0 Free Float (%) 60.5 Avg. Daily Vol.(‘000) 8,861
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Industry Focus CapitaLand
Income Statement (S$ m) Margins Trend FY Dec 2012A 2013A 2014F 2015F 2016F 38.0% Revenue 3,301 3,977 3,158 3,148 3,307 33.0% 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 28.0% Other Opng (Exp)/Inc (295) (743) (814) (893) (980) 23.0%
Operating Profit 933 343 1,156 1,116 1,107 18.0% Other Non Opg (Exp)/Inc 1 3 2 2 2 13.0% Associates & JV Inc 835 1,047 440 444 370 8.0% Net Interest (Exp)/Inc (405) (362) (307) (384) (429) 2012A 2013A 2014F 2015F 2016F Exceptional Gain/(Loss) 155 322 0 90 0 Operating Margin % Net Income Margin % 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 Property sales recognised EBITDA 1,815 1,444 1,649 1,613 1,530 from its China devt projects and improving returns from Growth Revenue Gth (%) 9.3 20.5 (20.6) (0.3) 5.0 its retail malls in china 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
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Error! Reference source not found.
CapitaLand
Quarterly / Interim Income Statement (S$ m) Revenue Trend FY Dec 3Q2013 4Q2013 1Q2014 2Q2014 3Q2014 1,200 80%
1,000 60% Revenue 960 1,085 613 875 919 40% Cost of Goods Sold (661) (867) (279) (574) (610) 800 20% Gross Profit 299 219 333 301 309 600 0% Other Oper. (Exp)/Inc (47) (152) (102) 124 (83) 400 -20% Operating Profit 252 67 232 425 227 200 Other Non Opg (Exp)/Inc 0 3 1 0 0 -40% Associates & JV Inc 126 344 140 375 124 0 -60%
Net Interest (Exp)/Inc (118) (79) (94) (108) (105) 2Q2012 3Q2012 4Q2012 1Q2013 2Q2013 3Q2013 4Q2013 1Q2014 2Q2014 3Q2014 Exceptional Gain/(Loss) 27 (36) 30 0 0 Revenue Revenue Growth % (QoQ) 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
Source: Company, DBS Bank
Page 78
Industry Focus CapitaLand
Balance Sheet (S$ m) Asset Breakdown (2014) FY Dec 2012A 2013A 2014F 2015F 2016F Net Fixed Debtors - Assets - Net Fixed Assets 1,264 1,079 1,194 1,308 1,423 4.6% 5.9% 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 Assocs'/JVs - Inventory - 73.5% Dev Props held for sale 7,510 7,382 9,255 10,159 11,063 0.0% Bank, Cash Inventory 0 0 0 0 0 and Liquid Debtors 1,485 1,164 924 921 968 Assets - 15.9% 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 Capital Expenditure
800 Cash Flow Statement (S$ m) 700 FY Dec 2012A 2013A 2014F 2015F 2016F 600 500 Pre-Tax Profit 1,518 1,185 1,292 1,269 1,051 400 Dep. & Amort. 46 50 50 50 50 300 Tax Paid (153) (195) (146) (145) (145) 200 100 Assoc. & JV Inc/(loss) (835) (1,047) (440) (444) (370) 0 Chg in Wkg.Cap. (476) (112) (3,213) (946) (875) 2012A 2013A 2014F 2015F 2016F Other Operating CF 148 643 0 (90) 0 Capital Expenditure (-) 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
Page 79
Industry Focus Capitamall Trust
Bloomberg: CT SP | Reuters: CMLT.SI Refer to important disclosures at the end of this report
BUY S$2.02 STI : 3,281.95 Key things to watch out for: Impact of recently opened shopping malls on tenant sales Price Target : 12-Month S$ 2.12 Level of demand for leasing space as retailers consolidate Potential Catalyst: Acquisitions/development Acquisition opportunities from restructured Sponsor Analyst Rachael Tan +65 6682 3713 +65 6682 3716 Investment Thesis [email protected] Expect moderate rental growth The cost of labour for most retailers has risen, placing temporary Rachael TAN +65 6682 3713 pressure on their profitability. As retailers are currently in a transition [email protected] 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. Price Relative S$ Relative Index Exposure to resilient suburban retail segment ensures steady
2.5 206 distributions CMT’s earnings are primarily derived from suburban 2.3 186 malls and therefore cater to non-discretionary goods, which tend to 166 2.1 be less sensitive to economic cycles. As such, income streams are 146 1.9 resilient, and the REIT’s attractively located assets should ensure 126 1.7 strong demand going forward. 106 1.5 86 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Potential to acquire remaining 70% stake in Westgate Capitamall Trust (LHS) Relative STI INDEX (RHS) Capitamalls Asia, CMT’s Sponsor, was acquired by Capitaland in 2014
as part of a corporate restructuring exercise. We believe that, given Forecasts and Valuation the Sponsor Group’s more streamlined organisational structure, more efficient capital recycling could come into play, putting CMT in a FY Dec (S$ m) 2013A 2014F 2015F 2016F strong position to expand its presence in Singapore amid high capital Gross Revenue 729 648 659 673 values and a dry transaction season. CMT’s most obvious target Net Property Inc 503 455 465 477 would be its Sponsor’s 70% stake in Westgate, a transaction which Total Return 574 570 406 413 could cost c.S$700m. Distribution Inc 367 437 406 413 EPU (S cts) 10.7 12.6 11.7 11.9 EPU Gth (%) (4) 18 (7) 2 Risks DPU (S cts) 10.3 11.0 11.3 11.5 Interest rate risk DPU Gth (%) 9 7 3 2 Any increase in interest rate will result in higher interest payments NAV per shr (S cts) 173.7 179.2 179.7 180.1 that the REIT has to make annually to service its loan. This would PE (X) 18.9 16.0 17.2 16.9 reduce income available for distribution, thereby resulting in lower Distribution Yield (%) 5.1 5.4 5.6 5.7 distribution per unit (DPU) for unitholders. 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 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$2.12 is based on the discounted cash flow (DCF) Distn. Inc Chng (%): - - - model. At its current price, CMT offers investors a dividend yield of Consensus DPU (S cts): 11.0 11.3 11.6 Other Broker Recs: B: 15 S: 2 H: 8 5.6% for FY15. We maintain our BUY call.
ICB Industry : Real Estate At A Glance ICB Sector: Real Estate Investment Trust Issued Capital (m shrs) 3,462 Principal Business: Real estate investment trust with a portfolio of Mkt. Cap (S$m/US$m) 6,994 / 5,245 five major shopping malls located in suburban areas in Singapore, Major Shareholders and Class E Bonds issued by CapitaRetail Singapore Ltd. CapitaLand Ltd (%) 28.0 Source of all data: Company, DBS Bank, Bloomberg Finance L.P Nomura (%) 7.7 NTUC Enterprise (%) 5.7 Free Float (%) 53.6 Avg. Daily Vol.(‘000) 7,483
Page 80 www.dbsvickers.com ed: TH / sa: JC
Industry Focus Capitamall Trust
Income Statement (S$ m) FY Dec 2012A 2013A 2014F 2015F 2016F Net Property Income and Margins S$ m Gross revenue 662 729 648 659 673 600 77.9% Property expenses (216) (226) (193) (194) (195) 500 75.9% 73.9% Net Property Income 445 503 455 465 477 400 Other Operating (48) (49) (39) (39) (40) 71.9% 300 Other Non Opg (Exp)/Inc 0 0 0 0 0 69.9% 200 Net Interest (Exp)/Inc (132) (117) (97) (96) (103) 67.9% Exceptional Gain/(Loss) 84 8 0 0 0 100 65.9% Net Income 369 371 437 406 413 0 63.9% 2012A 2013A 2014F 2015F 2016F Tax 2 (1) 0 0 0 Minority Interest 0 0 0 0 0 Net Property Income Net Property Income Margin % 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 Driven by Westgate which Growth & Ratio Revenue Gth (%) 4.9 10.2 (11.1) 1.7 2.0 will start contributing on a full-year basis in FY15F 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 7.3 6.7 6.0 5.9 5.9 fees to sales %) 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
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Industry Focus
Capitamall Trust
Quarterly / Interim Income Statement (S$ m) Net Property Income and Margins
FY Dec 3Q2013 4Q2013 1Q2014 2Q2014 3Q2014 130 71%
70% 125 Gross revenue 182 186 165 164 165 69% 120 Property expenses (56) (60) (50) (50) (51) 68% Net Property Income 126 125 114 114 114 115 67% Other Operating (12) (12) (11) (11) (11) 110 66% 65% 105 Other Non Opg (Exp)/Inc 0 0 0 0 0 64% 100 Net Interest (Exp)/Inc (28) (30) (27) (26) (26) 63% Exceptional Gain/(Loss) 0 0 2 2 1 95 62% Net Income 97 86 96 114 101 2Q2012 3Q2012 4Q2012 1Q2013 2Q2013 3Q2013 4Q2013 1Q2014 2Q2014 3Q2014 Tax 0 0 0 0 0 Net Property Income Net Property Income Margin % 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 Source: Company, DBS Bank
Page 82
Industry Focus Capitamall Trust
Balance Sheet (S$ m) Aggregate Leverage 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 40.0% Cash & ST Invts 1,118 830 966 928 932 35.0% Inventory 0 0 0 0 0 Debtors 13 22 31 31 32 30.0%
Other Current Assets 0 0 0 0 0 25.0% Total Assets 9,889 9,220 9,540 9,569 9,599 20.0% 2012A 2013A 2014F 2015F 2016F 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 Distribution Paid / Net Operating CF Cash Flow Statement (S$ m) FY Dec 2012A 2013A 2014F 2015F 2016F 1.5
Pre-Tax Income 369 371 437 406 413 1.3 Dep. & Amort. 0 0 0 0 0 1.1 Tax Paid 0 0 0 0 0 0.9 Associates &JV Inc/(Loss) (20) (26) (118) (76) (78) 0.7
Chg in Wkg.Cap. 111 (110) 70 4 5 0.5 Other Operating CF 0 0 0 0 0 0.3 Net Operating CF 459 235 389 334 340 2012A 2013A 2014F 2015F 2016F 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 6.1 2.2 10.0 7.7 9.1 Free CFPS (S cts) Source: Company, DBS Bank
Page 83
Industry Focus CDL Hospitality Trusts
Bloomberg: CDREIT SP | Reuters: CDLT.SI Refer to important disclosures at the end of this report
BUY S$1.76 STI : 3,281.95 Key things to watch out for: Turnaround in hotel performance in Singapore on the Price Target : 12-Month S$ 1.86 back of a recovery in tourist arrivals Potential Catalyst: Further acquistions Contribution from recently acquired Japan hotels Analyst Potential boost from acquisitions given low gearing Mervin SONG CFA +65 6682 3715 [email protected] Investment Thesis A leading hotel owner in Singapore. CDREIT is one of the largest Derek TAN +65 6682 3716 hotel owners in Singapore with a market share of 6%, catering to a [email protected] 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. Price Relative S$ Relative Index Potential upturn from 4Q14/1Q15. While CDREIT’s near-term 2.2 209 earnings have been impacted by a downturn in tourist arrivals into 189 2.0 169 Singapore and a more competitive landscape, with a potential 1.8 149 recovery in visitor arrivals from 4Q14/1Q15, this should drive a 1.6 129 rebound in earnings in FY15. Further upside could come from 109 1.4 acquisitions, as CDREIT s gearing (c.32%) is at the lower end of its 89 ’ 1.2 69 target range. Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 CDL Hospitality Trusts (LHS) Relative STI INDEX (RHS) Strong sponsor support. CDREIT’s sponsor is London-listed Millennium & Copthorne PLC (M&C), which enables CDREIT to tap on Forecasts and Valuation its business and supplier networks to generate operational efficiencies. FY Dec (S$ m) 2013A 2014F 2015F 2016F
Gross Revenue 149 159 178 183 Risks Net Property Inc 137 141 155 159 Interest rate risk. Any increase in interest rates will bring about higher Total Return 140 106 117 119 interest payments, which could result in lower distribution per unit Distribution Inc 119 119 130 132 (DPU) for unitholders. 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 Currency risk. As CDREIT earns rental income from various currencies, DPU Gth (%) (3) (1) 9 1 a depreciation of any foreign currency against the SGD could NAV per shr (S cts) 163.8 162.8 161.8 160.8 negatively impact distribution income, which is distributed in SGD. PE (X) 16.5 16.2 14.7 14.6 Distribution Yield (%) 6.2 6.2 6.8 6.8 Valuation P/NAV (x) 1.1 1.1 1.1 1.1 Our target price of S$1.86 is based on the dividend discount model. Aggregate Leverage (%) 30.7 32.4 32.4 32.3 Our BUY recommendation is premised on an expected recovery in ROAE (%) 6.6 6.7 7.4 7.5 FY15 earnings with further upside to our numbers, given CDREIT’s
low gearing of c.32%. At its current level, CDREIT offers a decent yield of 6.2-6.8%.
Distn. Inc Chng (%): - - - At A Glance Issued Capital (m shrs) 980 Consensus DPU (S cts): 11.0 11.5 11.6 Other Broker Recs: B: 8 S: 2 H: 8 Mkt. Cap (S$m/US$m) 1,725 / 1,294 Major Shareholders ICB Industry : Real Estate Hospitality Holdings Pte Ltd (%) 32.0 ICB Sector: Real Estate Investment Trust Principal Business: CDL REIT is a stapled security consisting of Nomura Asset Management (%) 16.5 hospitality trust with portfolio of hotel assets in Singapore and a Aberdeen Asset Management (%) 5.0 business trust. Free Float (%) 46.5 Source of all data: Company, DBS Bank, Bloomberg Finance L.P Avg. Daily Vol.(‘000) 1,087
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Industry Focus CDL Hospitality Trusts
Income Statement (S$ m) Net Property Income and Margins FY Dec 2012A 2013A 2014F 2015F 2016F
S$ m Gross revenue 150 149 159 178 183 200 Property expenses (10) (11) (17) (23) (24) 180 100.6% 160 98.6% Net Property Income 139 137 141 155 159 140 96.6% Other Operating (14) (14) (15) (16) (16) 120 94.6% Other Non Opg (Exp)/Inc 0 0 0 0 0 100 92.6% 80 90.6% Net Interest (Exp)/Inc (16) (17) (17) (19) (20) 60 88.6% Exceptional Gain/(Loss) 0 0 0 0 0 40 86.6% 20 84.6% Net Income 110 106 109 120 122 0 82.6% Tax (2) (3) (3) (3) (3) 2012A 2013A 2014F 2015F 2016F Minority Interest 0 0 0 0 0 Net Property Income Net Property Income Margin % Preference Dividend 0 0 0 0 0 Net Income After Tax 107 104 106 117 119 Growth in distributable Total Return 122 140 106 117 119 income due to recovery in Non-tax deductible Items 3 (1) 12 13 13 the Singapore hospitality Net Inc available for Dist. 122 119 119 130 132 market from 2015 and Growth & Ratio boost from the recently Revenue Gth (%) 6.0 (0.5) 6.6 12.2 2.8 announced Tokyo N Property Inc Gth (%) 3.0 (1.4) 2.7 9.9 2.6 acquisitions. 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 9.4 9.6 9.6 8.9 8.8 fees to sales %) 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
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Industry Focus
CDL Hospitality Trusts
Quarterly / Interim Income Statement (S$ m) Net Property Income and Margins
FY Dec 3Q2013 4Q2013 1Q2014 2Q2014 3Q2014 38 94% 37 92% Gross revenue 36 39 44 38 37 36 90% 35 Property expenses (3) (3) (7) (7) (3) 88% 34 86% Net Property Income 33 36 37 31 34 33 84% Other Operating (4) (4) (4) (4) (4) 32 82% Other Non Opg (Exp)/Inc 0 0 0 0 0 31 30 80%
Net Interest (Exp)/Inc (4) (4) (4) (4) (5) 29 78% Exceptional Gain/(Loss) 0 0 0 0 0 28 76% Net Income 26 28 29 23 25 2Q2012 3Q2012 4Q2012 1Q2013 2Q2013 3Q2013 4Q2013 1Q2014 2Q2014 3Q2014 Tax 0 (2) 0 (1) 0 Net Property Income Net Property Income Margin % 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 Source: Company, DBS Bank
Page 86
Industry Focus CDL Hospitality Trusts
Balance Sheet (S$ m) Aggregate Leverage 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 30.0% Cash & ST Invts 75 68 59 61 62 25.0% Inventory 0 0 0 0 0 Debtors 14 16 19 21 22 20.0%
Other Current Assets 0 0 0 0 0 15.0% Total Assets 2,134 2,323 2,405 2,413 2,417 10.0% 2012A 2013A 2014F 2015F 2016F 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) CDREIT remains in a Ratio strong position to Current Ratio (x) 0.3 0.5 0.4 0.4 0.4 pursue further Quick Ratio (x) 0.3 0.5 0.4 0.4 0.4 acquisitions. 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) Distribution Paid / Net Operating CF FY Dec 2012A 2013A 2014F 2015F 2016F
Pre-Tax Income 110 106 109 120 122 1.0 Dep. & Amort. 0 0 0 0 0 0.9 Tax Paid 0 0 0 0 0 0.8 Associates &JV Inc/(Loss) 0 0 0 0 0 0.7 Chg in Wkg.Cap. 2 (2) 11 2 1 0.6 Other Operating CF 25 27 0 0 0 0.5 Net Operating CF 136 131 120 123 123 0.4 0.3 Net Invt in Properties (5) (181) (89) (3) (3) 2012A 2013A 2014F 2015F 2016F 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
Page 87
Industry Focus Frasers Commercial Trust
Bloomberg: FCOT SP | Reuters: FRCR.SI Refer to important disclosures at the end of this report
BUY S$1.42 STI : 3,281.95 Key things to watch out for: Expiry of Alexandra Technopark master lease in August Price Target : 12-Month S$ 1.53 will drive significant earnings growth Potential Catalyst: Acquisitions/development projects Minimal expiries at Central Park in FY15/16 should help stabilise asset amid economic uncertainty in Perth Analyst Rachael TAN +65 6682 3713 Potential development opportunities at existing assets [email protected] Investment Thesis Derek TAN +65 6682 3716 Alexandra Technopark to drive earnings. Following the expiry of [email protected] 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 Price Relative expiring rents at ATP will mean further earnings surprise for the trust. S$ Relative Index 1.7 1.6 206 Diversified earnings base. FCOT s portfolio enjoys a high occupancy of 1.5 ’ 186 1.4 96.5% and a long WALE of 3.9 years. A well spread out lease expiry 1.3 166 1.2 profile will ensure minimal earnings risk for the stock in the 146 1.1 1.0 126 immediate term. 0.9 106 0.8 0.7 86 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Risks Rising interest fates . Any increase in interest rates will result in higher Frasers Commercial Trust (LHS) Relative STI INDEX (RHS) 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 Forecasts and Valuation interest rates do rise.
FY Sep (S$ m) 2014A 2015F 2016F 2017F Unfavourable forex movements. As FCOT derives c.49% of its income Gross Revenue 119 142 146 148 Net Property Inc 91 102 104 106 from AUD while distributions are based in SGD, foreign currency Total Return 87 60 61 63 fluctuations will have an impact on distributions. The manager has Distribution Inc 57 69 70 72 hedged out its AUD exposures on a 6- to 9-month rolling basis to EPU (S cts) 8.9 8.8 9.0 9.1 limit the impact of volatility on distributions. EPU Gth (%) (1) (1) 2 2 DPU (S cts) 8.5 10.1 10.3 10.4 Economic risk. A deterioration in the economic outlook could have a DPU Gth (%) 8 19 2 1 NAV per shr (S cts) 161.3 160.3 158.7 157.1 negative impact on office rents, which have a strong historical PE (X) 16.0 16.1 15.8 15.6 correlation with GDP growth. Distribution Yield (%) 6.0 7.1 7.2 7.3 P/NAV (x) 0.9 0.9 0.9 0.9 Valuation Aggregate Leverage (%) 36.8 36.8 36.8 36.9 We maintain our BUY call and DC-based TP of S$1.53. At its current ROAE (%) 5.6 5.5 5.6 5.8 price, FCOT offers investors a dividend yield of c.7.1-7.3% over FY15- 17F, which is highest amongst office-focused S-REITs.
At A Glance Issued Capital (m shrs) 679 Distn. Inc Chng (%): - - Consensus DPU (S cts): 10.0 10.0 Mkt. Cap (S$m/US$m) 964 / 723 Other Broker Recs: B: 5 S: 0 H: 0 Major Shareholders Frasers Centrepoint Ltd (%) 27.5 ICB Industry : Real Estate Nomura Asset Management (%) 18.4 ICB Sector: Real Estate Investment Trust Free Float (%) 54.0 Principal Business: Singapore and Australian Commercial office- Avg. Daily Vol.(‘000) 738 retail REIT
Source of all data: Company, DBS Bank, Bloomberg Finance L.P
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Industry Focus Frasers Commercial Trust
Income Statement (S$ 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 Topline growth mainly
Net Interest (Exp)/Inc (21) (21) (21) (22) (22) coming from ATP
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 Interest costs to remain Preference Dividend (7) 0 (1) (1) (1) fairly stable after Net Income After Tax 59 60 60 61 63 refinancing 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 Net Property Income and Margins
N Property Inc Gth (%) (11.3) (0.4) 12.9 2.1 1.8 S$ m Net Inc Gth (%) (28.1) 1.1 0.0 2.8 2.6 200 84.0% 180 82.0% Dist. Payout Ratio (%) 100.0 100.0 100.0 100.0 100.0 160 Net Prop Inc Margins (%) 76.9 76.2 71.9 71.7 71.6 140 80.0% 120 78.0% Net Income Margins (%) 50.0 50.3 42.0 42.2 42.5 100 76.0% 80 Dist to revenue (%) 43.5 48.2 48.2 48.3 48.5 74.0% 60 Managers & Trustee’s 72.0% 12.1 11.7 10.6 10.5 10.3 40 fees to sales %) 20 70.0% 0 68.0% ROAE (%) 5.8 5.6 5.5 5.6 5.8 2013A 2014A 2015F 2016F 2017F ROA (%) 2.8 3.2 3.2 3.3 3.3 Net Property Income Net Property Income Margin % 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
Page 89
Industry Focus
Frasers Commercial Trust
Quarterly / Interim Income Statement (S$ m) Net Property Income and Margins
FY Sep 4Q2013 1Q2014 2Q2014 3Q2014 4Q2014 30 78%
Gross revenue 29 29 29 30 32 25 77% Property expenses (7) (7) (7) (7) (8) 20 76%
Net Property Income 22 22 22 23 24 15 75% Other Operating (4) (3) (3) (3) (4) 10 74% Other Non Opg (Exp)/Inc (1) 0 0 (1) 1 Net Interest (Exp)/Inc (5) (5) (5) (5) (6) 5 73% Exceptional Gain/(Loss) 0 0 0 0 0 0 72% Net Income 12 14 13 14 15 3Q2012 4Q2012 1Q2013 2Q2013 3Q2013 4Q2013 1Q2014 2Q2014 3Q2014 4Q2014 Tax (7) (1) (1) (1) 5 Net Property Income Net Property Income Margin % 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 Source: Company, DBS Bank
Page 90
Industry Focus Frasers Commercial Trust
Balance Sheet (S$ m) Aggregate Leverage 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 35.0% Cash & ST Invts 43 47 49 44 39 30.0%
Inventory 0 0 0 0 0 25.0% Debtors 8 9 9 9 9 20.0% Other Current Assets 1 1 1 1 1 15.0% Total Assets 1,863 1,882 1,887 1,885 1,883 10.0% 2013A 2014A 2015F 2016F 2017F 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) Stable gearing of Ratio Current Ratio (x) 0.3 2.2 1.9 1.7 1.6 36.8% 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) Distribution Paid / Net Operating CF FY Sep 2013A 2014A 2015F 2016F 2017F
Pre-Tax Income 75 58 66 68 69 1.4 Dep. & Amort. 0 0 0 0 0 1.2 Tax Paid 0 (2) (1) (5) (5) 1.0 Associates &JV Inc/(Loss) 0 0 0 0 0 0.8 Chg in Wkg.Cap. (26) 10 0 0 0 0.6 Other Operating CF 4 16 7 7 7 0.4 Net Operating CF 52 82 72 69 71 0.2 Net Invt in Properties (31) (3) (3) (3) (3) 2013A 2014A 2015F 2016F 2017F 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
Page 5-
Industry Focus Mapletree Greater China Commercial Trust
Bloomberg: MAGIC SP | Reuters: MAPE.SI Refer to important disclosures at the end of this report
BUY S$0.95 STI : 3,281.95 Key things to watch out for:
Price Target : 12-Month S$ 1.04 Healthy rental reversions at Gateway Plaza albeit at a Potential Catalyst: Acquisitions slower rate due to a higher base effect Rental reversions to be driven by tenant remixing at Analyst Festival Walk and uplift to market rates at Gateway Plaza Mervin SONG CFA +65 6682 3715 [email protected] Potential acquisition opportunities in China
Derek TAN +65 6682 3716 Investment Thesis [email protected] 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 Price Relative Festival Walk and office space in Gateway Plaza respectively. In S$ Relative Index addition, 87% of expiring leases in FY15 have already been renewed 1.3 220
1.2 200 or re-let. With expectations of continued tenant sales growth and 180 1.1 active tenant management, MAGIC should see healthy uplifts in rents 160 1.0 140 over the coming year, albeit at a slower rate. 0.9 120 0.8 100 Upside from acquisitions 0.7 80 Mar-13 Aug-13 Jan-14 Jun-14 Nov-14 With gearing standing at c.38%, MAGIC’s balance sheet provides Mapletree Greater China Commercial Trust (LHS) Relative STI INDEX (RHS) some headroom for acquisitions. With a potential window opening
up in China due to a slowing economy, MAGIC is well positioned to Forecasts and Valuation take advantage of any acquisition opportunities.
FY Mar (S$ m) 2014A* 2015F 2016F 2017F Gross Revenue 268 263 280 293 Risks Net Property Inc 216 209 222 232 Foreign exchange risks Total Return 389 126 137 145 Given its overseas focus, the trust is exposed to foreign exchange risk Distribution Inc 168 167 182 191 although this is minimised over the coming year with 90% of its HK$ EPU (S cts) 4.5 4.7 5.0 5.3 income hedged in FY15. Rental income is collected in Hong Kong EPU Gth (%) 116 5 7 5 dollars and renminbi, while distributions are paid in S$ respectively. 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 Interest rate risks PE (X) 21.3 20.3 18.9 18.0 An increase in interest rates will negatively impact distributions. Distribution Yield (%) 6.6 6.5 7.0 7.3 However, interest costs for 77% of total debt due from FY15-16 and P/NAV (x) 0.9 0.9 0.9 0.9 53% of total remaining debt until end-FY17 have been hedged. Aggregate Leverage (%) 38.0 38.4 38.5 38.7 ROAE (%) 4.5 4.5 4.9 5.2 Valuation We maintain our DCF-based TP of S$1.04 and BUY recommendation. The trust offers investors FY15-17F distribution yields of 6.5-7.3% and a 15% total return. In addition, MAGIC trades at only 0.9x book.
Distn. Inc Chng (%): - - - Consensus DPU (S cts): 6.2 6.7 6.7 At A Glance Other Broker Recs: B: 6 S: 1 H: 2 Issued Capital (m shrs) 2,713 Mkt. Cap (S$m/US$m) 2,578 / 1,933 ICB Industry : Real Estate ICB Sector: Real Estate Investment Trusts Major Shareholders Principal Business: MGCCT is commercial landlord with properties in Mapletree Investments (%) 37.9 HK and China. Norges Bank (%) 4.9 Free Float (%) 57.2 Source of all data: Company, DBS Bank, Bloomberg Finance L.P
* from listing date to Mar’14 Avg. Daily Vol.(‘000) 3,669
Page 92 www.dbsvickers.com ed: TH / sa: JC
Industry Focus Mapletree Greater China Commercial Trust
Income Statement (S$ 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 Earnings driven by Tax (30) (25) (26) (27) organic rental reversions Minority Interest 0 0 0 0 at Festival Walk and Preference Dividend 0 0 0 0 Gateway Plaza Net Income After Tax 119 126 137 145 Total Return 389 126 137 145 Non-tax deductible Items 49 41 45 46 Net Property Income and Margins Net Inc available for Dist. 168 167 182 191 S$ m 300 Growth & Ratio 87.3% Revenue Gth (%) 137.0 (1.9) 6.6 4.6 250 85.3% N Property Inc Gth (%) 140.7 (3.5) 6.5 4.5 200 Net Inc Gth (%) 117.2 5.6 8.2 6.1 83.3% 150 Dist. Payout Ratio (%) 100.0 100.0 100.0 100.0 81.3% 100 Net Prop Inc Margins (%) 80.8 79.5 79.4 79.3 79.3% Net Income Margins (%) 44.6 48.1 48.8 49.5 50 77.3% Dist to revenue (%) 62.9 63.7 65.0 65.2 0 75.3% 2013A 2014A 2015F 2016F 2017F Managers & Trustee’s fees 9.1 6.4 6.6 6.4 to sales %) Net Property Income Net Property Income Margin % 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
Page 93
Industry Focus
Mapletree Greater China Commercial Trust
Quarterly / Interim Income Statement (S$ m) Net Property Income and Margins
FY Mar 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015 56 83%
83% 54 Gross revenue 63 66 65 64 67 82% 52 Property expenses (13) (12) (12) (11) (12) 82%
Net Property Income 51 54 53 53 55 50 81%
Other Operating (6) (6) (6) (6) (6) 81% 48 Other Non Opg (Exp)/Inc 0 0 0 1 1 80% 46 Net Interest (Exp)/Inc (10) (10) (10) (10) (10) 80% Exceptional Gain/(Loss) (5) 0 0 0 (1) 44 79% Net Income 29 38 37 39 39 1Q2014 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015 Tax (6) (7) (10) (6) (7) Net Property Income Net Property Income Margin % 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 Source: Company, DBS Bank
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Industry Focus Mapletree Greater China Commercial Trust
Balance Sheet (S$ m) Aggregate Leverage FY Mar 2014A 2015F 2016F 2017F
Investment Properties 4,722 4,722 4,725 4,729 Other LT Assets 1 1 1 1 40.0% Cash & ST Invts 133 91 73 52 35.0% Inventory 1 1 1 1 Debtors 9 4 4 4 30.0%
Other Current Assets 7 7 7 7 25.0% Total Assets 4,873 4,825 4,810 4,793 20.0% 2013A 2014A 2015F 2016F 2017F 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 Distribution Paid / Net Operating CF Cash Flow Statement (S$ m) FY Mar 2014A* 2015F 2016F 2017F 1.6
Pre-Tax Income 150 151 163 172 1.4 Dep. & Amort. 2 3 4 4 1.2 Tax Paid (30) (25) (26) (27) 1.0 0.8 Associates &JV Inc/(Loss) 0 0 0 0 0.6 Chg in Wkg.Cap. (59) (25) 4 3 0.4 Other Operating CF 114 0 0 0 0.2 Net Operating CF 176 104 145 152 2013A 2014A 2015F 2016F 2017F 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 (69.4) 3.8 5.2 5.4 Free CFPS (S cts) Source: Company, DBS Bank * from listing date to Mar’14
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Industry Focus
Singapore Property
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).
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Industry Focus Singapore Property
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 This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of Kingdom 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.
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Industry Focus
Singapore Property
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 Neither this report nor any copy hereof may be taken or distributed into the United States or to any U.S. person except in States 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 In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, jurisdictions 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
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