| MAYBANK | OCBC |
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Singapore Property Cyclical Upturn in 2018
Residential and office markets shifting into an attractive phase; Stay POSITIVE We see more upside for developer stocks in 2018 as Singapore’s property market continues its cyclical upturn. A potential for lower home vacancy rates and the resulting rental recovery should sustain the home price rebound and is a potential catalyst to watch. UOL and CityDev continue to be the best large-cap proxies to an impending rebound in Singapore’s property market. While lower stock liquidity is a concern for smaller players, we believe a significant valuation gap between mid-cap developers and their large-cap peers more than compensates for this. GUOL and BS are our preferred mid-cap developers. While office rents have bottomed out ahead of expectations, we turn more cautious on Office REITs at current valuations and will await a better entry point. We cut CCT to HOLD.
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Frasers Commercial Trust: Engine for growth emerges
Frasers Commercial Trust (FCOT) has entered into a 50:50 JV with its sponsor, Frasers Centrepoint Limited (FCL), to acquire Farnborough Business Park (FBP), which comprises 14 commercial buildings in the UK. We like the defensive attributes of the asset, as it has a long WALE of 8.3 years, a high occupancy rate of 98.1%, and good quality tenants. We are particularly encouraged by the expansion of FCOT’s investment mandate to include real estate assets in Europe used for commercial purposes. We note that FCL’s recently-acquired portfolio of business parks in Thames Valley is complementary to FBP, and would allow FCOT to tap on FCL’s asset management platform for greater synergy and operational efficiency. With greater clarity over the situation at Alexandra Technopark, as well as management’s ability to tap on previous capital gains, we believe that DPU, based on the existing portfolio should remain stable, and will be further augmented by growing the UK/Europe portfolio. Given management’s goal of building a balanced and diversified portfolio across geographies, we lower our beta assumption and our cost of equity now drops to 8.2%. With our fair value estimate now rising to S$1.51, we upgrade FCOT to a BUY.
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| DBS | |
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Singapore Property & REITs
The Quantum Leap The Singapore property market is at the start of a multi-year upturn Developers to continue re-rating as “expectations” are turned into “reality” Singapore REITs –climbing over the interest rate worry as growth momentum sets in Cyclicals will do well as positive market sentiment drives valuations higher
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