MARKET PULSE: S-REITs Sector, CCT, A-REIT (21 Aug 2012)

Stock Name: CapitaComm
Company Name: CAPITACOMMERCIAL TRUST

Research House: OCBC

Price Call: BUY

Target Price: 1.53

MARKET PULSE: S-REITs Sector, CCT, A-REIT

21 Aug 2012

KEY IDEA Singapore REITs - Switch to the right REITs As our house advocated an OVERWEIGHT rating on the S-REIT sector throughout FY12, we saw the FTSE ST REIT index appreciate 22.7% YTD, versus the STI's 15.7% gain, driven mostly by a flight to safety amidst macro uncertainties and a liquidity driven search for yield. At this juncture when we are seeing prices taking new heights and gaining updated visibility for subsector outlooks, we ask investors: Are you switching to the right REITs today? We present three key ideas for investors with REITs portfolios: 1) Move to office REITs from local retail REITs - prefer CCT [BUY, FV: S$1.53] over CMT [HOLD, FV: S$2.04], 2) Stay in industrial REITs for yield - top pick is CACHE [BUY, FV: S$1.18], 3) Hospitality outlook is intact but rotate to ART [BUY, FV: S$1.34] from CDLHT [HOLD, FV: S$2.06]. Other BUY rated REITs include FCT [FV: S$1.89], SGREIT [FV: S$0.79], MLT [FV: S$1.19], FCOT [FV: S$1.23] and CRCT [BUY, FV: S$1.70]. (Kevin Tan & team) MORE REPORTS CapitaCommercial Trust: Showing solid value here CapitaCommercial Trust's (CCT) 2Q12 distributable income of S$58.5m was 7.5% higher YoY and translated to a DPU of 2.06 S-cents per share. Judging from consensus estimates, we believe this to be above market expectations which had anticipated weaker rental reversion performances in the year to date. Going forward, we believe the dynamic of limited office completion and stabilizing office vacancy rates, seen over 2Q12, could continue till 2H13 as no major office completions are expected in the meantime. Moreover, with limited office leases in CCT's portfolio up for renewal (4.1%) in 2H12, we judge its operating fundamentals to be reasonably sound ahead. All considered, we believe there is solid value at current valuations (0.87x PB with a forward yield of 5.6%) for CCT's portfolio of prime office assets and operating track record. Upgrade to BUY with a higher fair value of S$1.53, versus S$1.31 previously, as we incorporate stronger cap values for CCT's assets. (Eli Lee) Ascendas REIT: Strong run-up likely to cap further upside Ascendas REIT (A-REIT) is Singapore's first listed business space and industrial REIT. It has a diversified portfolio of 101 properties in Singapore, and a business park property in China. For 1QFY13, we note that A-REIT turned in a commendable set of results, with DPU rising 10.3% YoY to 3.53 S cents despite an enlarged unit base post private placement. For FY13, A-REIT looks set to deliver another year of robust growth, supported by full-year contribution from its recent investments. However, we believe most of the positives have been reflected in its unit price, which has risen by 22.4% YTD. A-REIT is currently trading at 1.2x P/B and is just 1.3% shy of our fair value of S$2.27. Its FY13F DPU yield of 6.2% is also lower than the industrial REIT subsector average of 7.6%. As upside is likely limited, we downgrade A-REIT from Buy to HOLDon valuation grounds. (Kevin Tan)

NEWS HEADLINES - Most U.S. stocks fell given renewed concern over Europe's debt crisis, although the S&P 500 Index closed relatively flat at 1418.13 points. - Singapore's July NODX rose 5.8% YoY, exceeding market expectations for a 5.0% growth. - F&N announced that it has accepted Heineken's revised S$53/share offer for its entire interest in APB for a total aggregate consideration of S$5.59b. - LionGold Corp said that it has entered into a memorandum of agreement to possibly invest up to A$8.5m in Australia-listed miner Gold Anomaly and its PNG subsidiary.