MARKET PULSE: Property Market, Fortune REIT, CCT, CMT (08 Oct 2012)

Stock Name: Fortune Reit HK$
Company Name: FORTUNE REAL ESTATE INV TRUST

Research House: OCBC

Price Call: BUY

Target Price: 6.49

Stock Name: CapitaComm
Company Name: CAPITACOMMERCIAL TRUST

Research House: OCBC

Price Call: BUY

Target Price: 1.62

Stock Name: CapitaMall
Company Name: CAPITAMALL TRUST

Research House: OCBC

Price Call: HOLD

Target Price: 2.04

MARKET PULSE: Property Market, Fortune REIT, CCT, CMT

08 Oct 2012

KEY IDEA Singapore Residential Property: Limits on residential loan tenures Summary: Last Friday, the MAS announced 35-year limits on all residential loans for both individual and non-individual borrowers, as well as refinancing loans. For loans >30 years and extending beyond the age of 65 years, the LTV ratio is lowered to 40% for those with outstanding residential loans, and 60% for those with none. In our view, after similar measures in Hong Kong last month, the market has, to some extent, anticipated loan tenures limits. Given that the average loan tenure in Singapore is still at a relatively acceptable 29 years currently, we see these measures as mostly preventive, rather than punitive, in nature, and that other key drivers of demand, such as low forward rates, easy loan access and healthy system liqudity, would likely continue to be conducive for new home sales. Therefore, all considered, we expect these measures to have a somewhat muted impact on equities and physical prices. Maintain OVERWEIGHT on the residential sector. Our top pick is City Developments[BUY, FV: S$13.18] for its sharp execution, strong balance sheet and mass-market segment exposure. MORE REPORTS Fortune Real Estate Investment Trust: Further yield compression could take place Summary: In Aug, the value of HK retail sales climbed 4.5% YoY, a slightly improvement over Jul, which saw sales rise 3.9% YoY (revised figure). While these increases are substantially lower than the YoY increases earlier in the year, which ranged between 8.7% and 17.1% for Jan-Jun, rental rates and prices of retail spaces are still continuing a good upward march. Based on information from the Hong Kong Retail Management Association, we think that rental rates may have relatively more room to climb vis-à-vis the cost of other production factors, specifically wages and inventory costs. We lower our discount rate to reflect the prevailing interest rates, which are likely to stay low till at least mid-2015 given QE3. We raise our fair value from HK$5.33 to HK$6.49 and upgrade FRT from HOLD to BUY. (Sarah Ong) CCT & CMT: S$34.7m AEI on Raffles City Tower Summary: CapitaCommercial Trust (CCT) and CapitaMall Trust (CMT) announced last Friday that they will be embarking on a S$34.7m asset enhancement initiative (AEI) on Raffles City Tower, the office segment of Raffles City Singapore. The enhancement works, which include the enhancement of security and upgrading of the main lobby, common areas and restrooms, will commence in Nov 2012 and is expected to achieve a projected return on investment of 8.6%, according to the REIT managers. We expect minimal disruption and inconvenience to its existing tenants as the AEI will be carried out in phases progressively over the next 1.5 years (until 2Q14). We are keeping our forecasts on CCT and CMT unchanged pending their 3Q12 results. Maintain BUY [FV: S$1.62] fair value on CCT and HOLD rating [FV: S$2.04] on CMT. As a reference, Raffles City is jointly owned by CCT and CMT through an unlisted special purpose sub-trust, RCS Trust, with CCT and CMT holding interests of 60.0% and 40.0% respectively. (Eli Lee & Kevin Tan)

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NEWS HEADLINES - US stocks ended mostly lower Friday, despite an unexpected drop in unemployment, as concerns over Europe's debt issues weighed on sentiment. The Dow rose 0.3% to close at 13,610.15, a five-year high. The S&P 500 Index fell 0.03% to 1,460.93. - Olam International has acquired 50% of shares and voting rights in Acacia Investments for US$35m. The latter has a significant presence in edible oil refining and distribution in East Africa. - Global Logistic Properties announced the sale of 16.7% of the total outstanding equity of GLP Japan Logistics Partners to clients of CBRE Global Multi Manager for JPY7.6b.