Report published 2 days ago.
PROPERTY STOCKS and REITS have sunk badly in the past year (which sector hasn't?) but they could regain some buoyancy if JP Morgan’s predictions pan out soon.
In a Jan 5 report (above), JP Morgan analysts Christopher Gee and Joy Wang said: “We think a waiver or reduction of property stamp duties and/or property tax could be possibly introduced in the coming budget announcement on Jan 22.”
Unlike property developers, who are expected to write down their assets in the upcoming results season from mid-Jan to mid-Feb, S-REITs may pace their writedowns through the course of the year as independent appraisals are adjusted lower.
”We think S-REITs, however, are unlikely to write down their investment property valuations in a drastic way given that valuations for commercial property tends to lag.”
The market is concerned about the trajectory of industrial property rentals and occupancy rates in this challenging environment.
JP Morgan noted that industrial property rents are in general only 33% higher than where they were in Q90, whereas Singapore quarterly nominal GDP has grown almost four-fold over that same time, providing some evidence that industrial rents are not overly expensive relative to economic output within a historical context.
Capital Tower is part of the CCT portfolio.
Market concerns about REITS refinancing further allayed
CapitaCommercial Trust’s (CCT) manager announced on Jan 6 the successful refinancing of S$580m of commercial mortgage-backed securities (CMBS) that were due in March 2009.
This is the latest of a handful of cases of REITS achieving refinancing for loans maturing this year.
* Cambridge Industrial REIT obtained a 3-yr syndicated term loan for S$390.1m at 6.6%.
* AREIT secured S$200m of borrowings to refinance the S$300m CMBS due Aug.
* Mapletree Logistics Trust has disclosed that it has S$360m of committed credit lines and firm proposals.
Increasingly, analysts reckon that the gloom over the refinancing prospects of the S-REIT sector should lift. The market turned positive on REITS, sending the unit prices of 14 out of 21 of them up yesterday.
Deutsche Bank said in a report yesterday (Jan 7): “CCT's successful refinancing is positive and should allay market concerns over gearing and fears of recapitalistion.”
Daiwa Research: “This latest development provides further evidence that the S-REIT sector’s fundamentals are turning around slowly, in our view. We believe the sector is beginning to show signs of stabilising, especially in the critical area of debt refinancing.”
On CCT, it said that the all-in interest cost for the refinancing would be well within the company’s projection of 4.4% for 2009 set out in its circular dated 9 June 2008.
“We believe the refinancing could even be closer to 4%, which would be in line with our forecasts. We have not revised our distribution per-unit (DPU) forecasts.”
The successful cases of refinancing, however, have to be viewed against a backdrop of weakening fundamentals in the property sector.
Suntec REIT is a pick of UBS.
JP Morgan said: “Stock price catalysts continue to be incrementally negative from an operating standpoint, with property consultant DTZ indicating a 15.8% decline in Raffles Place office rents in 4Q08 and projecting continued rental weakness in 2009.”
UBS Investment Research: We continue to expect office rents and capital values to fall 53% peak-to-trough from Q308 to 2012, implying a RNAV of S$1/unit for CCT. We expect CCT to raise S$1bn of equity by 2010 to strengthen its balance sheet, which could dilute its RNAV further to S$0.65/unit.
”We reiterate our Sell rating. Amongst the large cap REITs, we prefer Suntec given its higher discount to RNAV of S$1.49/unit.”