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雷达卡
Property Trusts
Regaining 'trusts'
The first wave of refinancing deals has been concluded, lifting a major overhang
for the sector. We see value emerging, with the sector trading at a high current
yield of 12%, or 10ppt above the 10-year government bond. We upgrade the
sector to Overweight. CCT (TP: S$1.60) is our top pick.
Key recommendations & forecasts
Target 2009F 2010F
Reuters Year End Recom Price Price DPU DPU
CapitaCommercial Trust CACT.SI Dec 2008 Buy S$1.03 S$1.60 S$0.11 S$0.11
CDL Hospitality Trusts CDLT.SI Dec 2008 Buy S$0.71 S$1.00 S$0.08 S$0.06
Ascendas REIT* AEMN.SI Mar 2009 Buy S$1.54 S$1.90 S$0.14 S$0.14
CapitaMall Trust CMLT.SI Dec 2008 Hold S$1.71 S$1.85 S$0.13 S$0.12
*DPU for FY10 and FY11
Source: ABN AMRO forecasts
We think it’s time to buy
Several REITs have secured refinancing in the past two months (refinancing fear was the
main overhang on REIT stocks last year), but the sector is still down 60% from last year’s
peak in May vs a 44% fall for the STI in the same period. Depressed stock prices have
pushed REIT FY09F yields to an attractive 7-11%. Our top Buy is CCT, which has
successfully refinanced and its lower office rents look priced in. We also rate CDREIT and AREIT
Buy; we rate CMT Hold because we think it may need to raise equity.
Lower refinancing risk is a big positive for the sector
Successful refinancing by Cambridge (CREIT) and CCT in the past two months seems to
have renewed investor confidence in the sector. CREIT’s stock price has outperformed the
REIT index by 30ppt since its loan renewal on 11 December. CCT has also gained 11% from
7 January to date vs a 1% gain on the REIT index. We estimate a hike of 50-230bp in the
average funding cost for REITs under our coverage, which is likely to erode 2009 dividends
per unit (DPU) by 5-9%. Even so, news of loans secured by other REITs should boost
confidence in the sector further. We rate CDREIT a Buy because we believe the company
will successfully refinance its S$297m of debt due in July.
We see compelling yields and valuations
The sector currently trades at an attractive 9.7ppt yield gap on our forecasts vs the 10-year
government bond yield. This yield gap compares with a 2.6ppt historical average and 4.4ppt
during the SARS outbreak, despite our lower rental and higher interest cost assumptions.
REITs under our coverage are trading at a 20-70% discount to NAV, based on companies’
3Q08 NAV and also below our DCF-based target prices.
Recapitalisations unlikely to be widespread
We do not expect recapitalisations to be widespread. We think writedowns for the sector are
unlikely to be excessive as revaluations tend to be smaller than spot rent changes. REITs
are not compelled to reduce gearing even if they exceed the 60% regulatory limit, giving
them flexibility to time their recapitalisation.
Contents
Stock recommendations 3
Refinancing fear abating 4
The refinancing fear that had plagued the sector is subsiding as REITs have
secured new debt deals and at better rates than we expected. Most REITs under
our coverage would see only a 50bp increase in interest cost. We recommend
Overweighting the sector.
4
Compelling yields 6
S-REITs’ yields are 9.7ppt above the 10-year government bond vs a 2.6ppt
historical average. Despite factoring in lower rents and higher interest costs, REITs
under our coverage still provide appealing yields of 7-11% in 2009-10, on our
forecasts.
6
Some lingering recapitalisation concerns 8
We believe A-REIT, CCT and CDREIT will not need to reduce gearing by raising
equity. CMT is probably the most likely to raise equity because it is the most highly
geared of the stocks.
8
Company profiles
CapitaCommercial Trust 10
CDL Hospitality Trusts 15
Ascendas REIT 20
CapitaMall Trust 25
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