Research from SooChow CSSD Capital Markets (Asia), SCCM Asia Research

SCCM Asia Research

Research from SooChow CSSD Capital Markets (Asia)

Thematic (Sector/Industry)

<h2>Singapore</h2>SREITs results in a glance (see detailed spreadsheet and calendar attached)<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/236/273/original/image_54776601321634694560432.png?1634694565" class="editor-image img-responsive" data-smartkarma-image-id="236273"></figure><ul><li><h3></h3><a href="https://www.smartkarma.com/entities/ascendas-real-estate-investment-trust" target="_blank" data-smartkarma-citation="entities:39" rel="noopener">Ascendas Real Estate Investment Trust (AREIT SP)</a> 3Q21 Business Updates; Robust reversions while on virtuous cycle of inorganic growth (BUY; TP S$3.55/unit)</li><li>3Q21 revenue, NPI and DPU were undisclosed. AREIT has completed the development of the Grab Headquarters, with a total development cost of S$184.6m. Divestment of two Australian logistics properties has also been completed at a price of S$104.5m (AUD101.6m)</li></ul>

SingaporeSREITs results in a glance (see detailed spreadsheet and calendar attached)Ascendas Real Estate Investment Trust (AREIT SP) 3Q21 Business Updates; Robust reversions while on virtuous cycle of inorganic growth (BUY; TP S$3.55/unit)3Q21 revenue, NPI and DPU were undisclosed. AREIT has completed the development of the Grab Headquarters, with a total development cost of S$184.6m. Divestment of two Australian logistics properties has also been completed at a price of S$104.5m (AUD101.6m)

<h2>Singapore</h2><h3>SREITs results in a glance (see detailed spreadsheet and calendar attached)</h3><table class="table table-striped"><tbody><tr><td style="width: 146.859px; height: 12px;"> </td><td style="width: 143.312px; height: 12px;">AREIT</td><td style="width: 147.344px; height: 12px;">MINT</td><td style="width: 145.031px; height: 12px;">AAREIT</td><td style="width: 143.453px; height: 12px;">EREIT</td></tr><tr><td style="width: 146.859px; height: 13px;">Period</td><td style="width: 143.312px; height: 13px;">1H21</td><td style="width: 147.344px; height: 13px;">1Q22</td><td style="width: 145.031px; height: 13px;">1Q22</td><td style="width: 143.453px; height: 13px;">2Q21</td></tr><tr><td style="width: 146.859px; height: 13px;">Gross Revenue (S$ m)</td><td style="width: 143.312px; height: 13px;">586.0 (+12.4% YoY)</td><td style="width: 147.344px; height: 13px;">128.1 (+29.2% YoY)</td><td style="width: 145.031px; height: 13px;">31.8 (+16.8% YoY)</td><td style="width: 143.453px; height: 13px;">59.5 (+6.25% YoY)</td></tr><tr><td style="width: 146.859px; height: 12px;">NPI (S$ m)</td><td style="width: 143.312px; height: 12px;">445.6 (+14.8% YoY)</td><td style="width: 147.344px; height: 12px;">104.7 (+33.1% YoY)</td><td style="width: 145.031px; height: 12px;">23.1 (+23.9% YoY)</td><td style="width: 143.453px; height: 12px;">42.9 (+9.4% YoY)</td></tr><tr><td style="width: 146.859px; height: 12px;">DPU (S$ c)</td><td style="width: 143.312px; height: 12px;">7.66 (+5.4% YoY)</td><td style="width: 147.344px; height: 12px;">3.35 (+16.7% YoY)</td><td style="width: 145.031px; height: 12px;">2.25 (+12.5% YoY)</td><td style="width: 143.453px; height: 12px;">0.754 (13.9% YoY)</td></tr><tr><td style="width: 146.859px; height: 12px;">NAV per Unit (S$)</td><td style="width: 143.312px; height: 12px;">2.27</td><td style="width: 147.344px; height: 12px;">1.75</td><td style="width: 145.031px; height: 12px;">1.35</td><td style="width: 143.453px; height: 12px;">0.398</td></tr><tr><td style="width: 146.859px; height: 12px;">P/B (x)</td><td style="width: 143.312px; height: 12px;">1.37</td><td style="width: 147.344px; height: 12px;">1.65</td><td style="width: 145.031px; height: 12px;">1.15</td><td style="width: 143.453px; height: 12px;">1.1</td></tr><tr><td style="width: 146.859px; height: 12px;">Occupancy (%)</td><td style="width: 143.312px; height: 12px;">91.3</td><td style="width: 147.344px; height: 12px;">94.3 (Overall); 97.8 (North American); 93.4 (Singapore)</td><td style="width: 145.031px; height: 12px;">95.7</td><td style="width: 143.453px; height: 12px;">91.7</td></tr><tr><td style="width: 146.859px; height: 6px;">Reversion (%)</td><td style="width: 143.312px; height: 6px;">6.4</td><td style="width: 147.344px; height: 6px;">Not Disclosed</td><td style="width: 145.031px; height: 6px;">Not disclosed</td><td style="width: 143.453px; height: 6px;">-0.2</td></tr><tr><td style="width: 146.859px; height: 12px;">Gearing (%)</td><td style="width: 143.312px; height: 12px;">37.6</td><td style="width: 147.344px; height: 12px;">31</td><td style="width: 145.031px; height: 12px;">34.3</td><td style="width: 143.453px; height: 12px;">42.9</td></tr><tr><td style="width: 146.859px; height: 12px;">Cost of Debt (%)</td><td style="width: 143.312px; height: 12px;">2.4</td><td style="width: 147.344px; height: 12px;">2.7</td><td style="width: 145.031px; height: 12px;">2.8</td><td style="width: 143.453px; height: 12px;">3.24</td></tr><tr><td style="width: 146.859px; height: 12px;">1 Yr Fwd Yield (%)</td><td style="width: 143.312px; height: 12px;">5.06</td><td style="width: 147.344px; height: 12px;">4.69</td><td style="width: 145.031px; height: 12px;">6.1</td><td style="width: 143.453px; height: 12px;">7.05</td></tr><tr><td style="width: 146.859px; height: 12px;">Debt Hedged (%)</td><td style="width: 143.312px; height: 12px;">75.2</td><td style="width: 147.344px; height: 12px;">95.8</td><td style="width: 145.031px; height: 12px;">77.2</td><td style="width: 143.453px; height: 12px;">75</td></tr><tr><td style="width: 146.859px; height: 12px;">Target Price</td><td style="width: 143.312px; height: 12px;">Under Review</td><td style="width: 147.344px; height: 12px;">N/A</td><td style="width: 145.031px; height: 12px;">Under Review</td><td style="width: 143.453px; height: 12px;">N/A</td></tr><tr><td style="width: 146.859px; height: 13px;">Rating</td><td style="width: 143.312px; height: 13px;">Under Review</td><td style="width: 147.344px; height: 13px;">N/A</td><td style="width: 145.031px; height: 13px;">Under Review</td><td style="width: 143.453px; height: 13px;">Under Review</td></tr></tbody></table>

SingaporeSREITs results in a glance (see detailed spreadsheet and calendar attached) AREITMINTAAREITEREITPeriod1H211Q221Q222Q21Gross Revenue (S$ m)586.0 (+12.4% YoY)128.1 (+29.2% YoY)31.8 (+16.8% YoY)59.5 (+6.25% YoY)NPI (S$ m)445.6 (+14.8% YoY)104.7 (+33.1% YoY)23.1 (+23.9% YoY)42.9 (+9.4% YoY)DPU (S$ c)7.66 (+5.4% YoY)3.35 (+16.7% YoY)2.25 (+12.5% YoY)0.754 (13.9% YoY)NAV per Unit (S$)2.271.751.350.398P/B (x)1.371.651.151.1Occupancy (%)91.394.3 (Overall); 97.8 (North American); 93.4 (Singapore)95.791.7Reversion (%)6.4Not DisclosedNot disclosed-0.2Gearing (%)37.63134.342.9Cost of Debt (%)2.42.72.83.241 Yr Fwd Yield (%)5.064.696.17.05Debt Hedged (%)75.295.877.275Target PriceUnder ReviewN/AUnder ReviewN/ARatingUnder ReviewN/AUnder ReviewUnder Review

ASEAN Builder's Scoop (03Aug21) - AREIT Boosted by DPU-Accretive Acq

<h2>Singapore</h2><h3><a href="https://www.smartkarma.com/entities/prime-us-reit" target="_blank" data-smartkarma-citation="entities:28144" rel="noopener">Prime US REIT (PRIME SP)</a> in talks with WeWork on proposed lease restructuring</h3><ul><li>Co-working space operator WeWork has approached PRIME with a proposal to restructure its lease at the latter's Class-A office property in California, and discussions are ongoing. The tenant occupies 56,977sqft within Tower I at Emeryville, out of the building's NLA of 222,606sqft. The tenant contributes less than 2.5% of PRIME's cash rental income as at end-Mar. It added that the tenant has been current on its rental obligations till mid-Jun21, and the lease terms are currently under evaluation</li><li>PRIME has called on the tenant to continue to meet its rental obligations, and also called upon the existing security package for the payment of such obligations. PRIME's security in relation to that WeWork lease consists of a combination of protections. If the counterparty honours its obligations, such protections will cover the tenant's monthly lease obligations through as much as end-2022. PRIME does not expect the matter to have any impact on the distribution per unit of PRIME for FY21, in light of the security. Based on the independent valuation sought, this will not materially affect the value of PRIME's portfolio as compared to the portfolio appraisal conducted as at last Dec.</li></ul>

SingaporePrime US REIT (PRIME SP) in talks with WeWork on proposed lease restructuringCo-working space operator WeWork has approached PRIME with a proposal to restructure its lease at the latter's Class-A office property in California, and discussions are ongoing. The tenant occupies 56,977sqft within Tower I at Emeryville, out of the building's NLA of 222,606sqft. The tenant contributes less than 2.5% of PRIME's cash rental income as at end-Mar. It added that the tenant has been current on its rental obligations till mid-Jun21, and the lease terms are currently under evaluationPRIME has called on the tenant to continue to meet its rental obligations, and also called upon the existing security package for the payment of such obligations. PRIME's security in relation to that WeWork lease consists of a combination of protections. If the counterparty honours its obligations, such protections will cover the tenant's monthly lease obligations through as much as end-2022. PRIME does not expect the matter to have any impact on the distribution per unit of PRIME for FY21, in light of the security. Based on the independent valuation sought, this will not materially affect the value of PRIME's portfolio as compared to the portfolio appraisal conducted as at last Dec.

ASEAN Builder's Scoop (18Jun21) - PRIME/WeWork Lease Restructuring

<h2>Singapore</h2><h3><a href="https://www.smartkarma.com/entities/ascendas-real-estate-investment-trust" target="_blank" data-smartkarma-citation="entities:39" rel="noopener">Ascendas Real Estate Investment Trust (AREIT SP)</a> to divest three properties in Australia for ~4.1% NPI yield (BUY; TP S$3.55/unit)</h3>AREIT will divest three logistics properties in Australia for a total of AUD125.1m (S$128.7m). The sale price is ~16.8% higher than the total market valuations of the properties of AUD101.1m as at 31Dec20. The divestments are expected to be completed by 3Q21. AREIT had entered into two separate agreements with unrelated purchasers for the sale of two logistics properties (82 Noosa Street and 62 Stradbroke Street) in Brisbane; and one logistics property (1314 Ferntree Gully Road) in Melbourne. Assuming the divestments were completed on 1Jan20, the annualised proforma impact on AREIT’s NPI would have been a decrease of S$5.1m and DPU would have fallen by S$0.075c for FY20. Net proceeds after divestment costs are expected to be S$124.0m. If the net proceeds were used to repay AREIT’s borrowings as at 31Mar, its gearing will be reduced from 38% to around 37.5%. Post-divestment, AREIT will own 95 properties in Singapore, 34 properties in Australia, 30 properties in the US and 49 properties in the UK/Europe. <table class="table table-striped"><tbody><tr><td style="width: 59.3438px;">Asset</td><td style="width: 48.4375px;">Asset Type</td><td style="width: 45.9375px;">FY20 Gross Revenue</td><td style="width: 59.5781px;">NLA as at 31Dec20</td><td style="width: 59.5625px;">Occupancy as at 31Dec20</td><td style="width: 60.6406px;">Acquisition Date</td><td style="width: 60.6406px;">Acquisition Price</td><td style="width: 101.734px;">Valuation as at 31Dec20(A$1.000:S$0.980)</td><td style="width: 94.9219px;">Sale Price(A$1.00:S$1.029)</td><td style="width: 63.7188px;">Buyer</td></tr><tr><td style="width: 59.3438px;">82 Noosa Street, Brisbane, Australia</td><td style="width: 48.4375px;">Logistics</td><td style="width: 45.9375px;">S$3.3m</td><td style="width: 59.5781px;">38,000sqm</td><td style="width: 59.5625px;">100%</td><td style="width: 60.6406px;">Oct15</td><td style="width: 60.6406px;">S$66.0m</td><td style="width: 101.734px;">A$53.0m (S$51.9m)</td><td rowspan="2" style="width: 94.9219px;">A$101.6m (S$104.5m)or A$1,624psqm</td><td rowspan="2" style="width: 63.7188px;">SIRE (Strategic Industrial Real Estate), an Arrow Capital Partners vehicle in cooperation with Altis Property Partners</td></tr><tr><td style="width: 59.3438px;">62 Stradbroke Street, Brisbane, Australia</td><td style="width: 48.4375px;">Logistics</td><td style="width: 45.9375px;">S$2.6m</td><td style="width: 59.5781px;">24,555sqm</td><td style="width: 59.5625px;">100%</td><td style="width: 60.6406px;">Oct15</td><td style="width: 60.6406px;">S$35.9m</td><td style="width: 101.734px;">A$37.4m (S$36.7m)</td></tr><tr><td style="width: 59.3438px;">1314 Ferntree Gully Road, Melbourne, Australia</td><td style="width: 48.4375px;">Logistics</td><td style="width: 45.9375px;">S$0.5m</td><td style="width: 59.5781px;">16,134sqm</td><td style="width: 59.5625px;">100%</td><td style="width: 60.6406px;">Jun18</td><td style="width: 60.6406px;">S$16.4m</td><td style="width: 101.734px;">A$16.6m (S$16.3m)</td><td style="width: 94.9219px;">A$23.5m (S$24.2m)or A$1,500psqm</td><td style="width: 63.7188px;">China Tube Pty Ltd and Haelram Pty Ltd</td></tr><tr><td colspan="2" style="width: 128.781px;">TOTAL</td><td style="width: 45.9375px;">S$6.4m</td><td style="width: 59.5781px;"> </td><td style="width: 59.5625px;"> </td><td style="width: 60.6406px;"> </td><td style="width: 60.6406px;">S$118.3m</td><td style="width: 101.734px;">A$107.1m (S$104.9m)</td><td style="width: 94.9219px;">A$125.1m (S$128.7m)</td><td style="width: 63.7188px;"> </td></tr></tbody></table>Comments:<ul><li>Taking reference from FY20 AUS Portfolio NPI Margin of 79.0%, the blended NPI yield based on S$128.7m Sale Price would be ~3.9%. Note that comparing the exchange rate adopted for Sale Price vs. Valuation as at 31Dec20, the AUD has strengthen ~5%. Using the 31Dec20 exchange rate, the blended NPI yield would be ~4.1%. Together with its recent divestment of 11 Changi North Way (at S$16.0m), AREIT would have a total divestment proceeds S$144.7m and booking total S$33.8m divestment gain</li><li>Moving forward, we expect AREIT’s DPU to be propelled by both organic and inorganic growth while it reconstitute its portfolio. Notwithstanding the S$1.19bn worth of acquisitions in 1Q21 (estimated to be 1.5% DPU accretive) and the acquisition of remaining 75% of Galaxis (estimated to be 0.40% DPU accretive), the new BTS business park development for Grab as well as UBIX redevelopment (formerly 25 &amp; 27 Ubi Road 4) should start contributing by 2H21 (expected to add S$14.2m to NPI on a full-year basis at 6.4%-7.5% NPI yields)</li><li>We believe AREIT remains in a virtuous cycle of growth. The S$420.0m EFR exercise in 4May21 as well as repayment debt utilizing the divestment proceeds should lower its gearing. With greater financial flexibility, relatively low cost of equity and low interest rate environment, AREIT has further scope for inorganic growth. We have a BUY rating with TP of S$3.55/Unit.</li></ul>

SingaporeAscendas Real Estate Investment Trust (AREIT SP) to divest three properties in Australia for ~4.1% NPI yield (BUY; TP S$3.55/unit)AREIT will divest three logistics properties in Australia for a total of AUD125.1m (S$128.7m). The sale price is ~16.8% higher than the total market valuations of the properties of AUD101.1m as at 31Dec20. The divestments are expected to be completed by 3Q21. AREIT had entered into two separate agreements with unrelated purchasers for the sale of two logistics properties (82 Noosa Street and 62 Stradbroke Street) in Brisbane; and one logistics property (1314 Ferntree Gully Road) in Melbourne. Assuming the divestments were completed on 1Jan20, the annualised proforma impact on AREIT’s NPI would have been a decrease of S$5.1m and DPU would have fallen by S$0.075c for FY20. Net proceeds after divestment costs are expected to be S$124.0m. If the net proceeds were used to repay AREIT’s borrowings as at 31Mar, its gearing will be reduced from 38% to around 37.5%. Post-divestment, AREIT will own 95 properties in Singapore, 34 properties in Australia, 30 properties in the US and 49 properties in the UK/Europe. AssetAsset TypeFY20 Gross RevenueNLA as at 31Dec20Occupancy as at 31Dec20Acquisition DateAcquisition PriceValuation as at 31Dec20(A$1.000:S$0.980)Sale Price(A$1.00:S$1.029)Buyer82 Noosa Street, Brisbane, AustraliaLogisticsS$3.3m38,000sqm100%Oct15S$66.0mA$53.0m (S$51.9m)A$101.6m (S$104.5m)or A$1,624psqmSIRE (Strategic Industrial Real Estate), an Arrow Capital Partners vehicle in cooperation with Altis Property Partners62 Stradbroke Street, Brisbane, AustraliaLogisticsS$2.6m24,555sqm100%Oct15S$35.9mA$37.4m (S$36.7m)1314 Ferntree Gully Road, Melbourne, AustraliaLogisticsS$0.5m16,134sqm100%Jun18S$16.4mA$16.6m (S$16.3m)A$23.5m (S$24.2m)or A$1,500psqmChina Tube Pty Ltd and Haelram Pty LtdTOTALS$6.4m   S$118.3mA$107.1m (S$104.9m)A$125.1m (S$128.7m) Comments:Taking reference from FY20 AUS Portfolio NPI Margin of 79.0%, the blended NPI yield based on S$128.7m Sale Price would be ~3.9%. Note that comparing the exchange rate adopted for Sale Price vs. Valuation as at 31Dec20, the AUD has strengthen ~5%. Using the 31Dec20 exchange rate, the blended NPI yield would be ~4.1%. Together with its recent divestment of 11 Changi North Way (at S$16.0m), AREIT would have a total divestment proceeds S$144.7m and booking total S$33.8m divestment gainMoving forward, we expect AREIT’s DPU to be propelled by both organic and inorganic growth while it reconstitute its portfolio. Notwithstanding the S$1.19bn worth of acquisitions in 1Q21 (estimated to be 1.5% DPU accretive) and the acquisition of remaining 75% of Galaxis (estimated to be 0.40% DPU accretive), the new BTS business park development for Grab as well as UBIX redevelopment (formerly 25 &amp; 27 Ubi Road 4) should start contributing by 2H21 (expected to add S$14.2m to NPI on a full-year basis at 6.4%-7.5% NPI yields)We believe AREIT remains in a virtuous cycle of growth. The S$420.0m EFR exercise in 4May21 as well as repayment debt utilizing the divestment proceeds should lower its gearing. With greater financial flexibility, relatively low cost of equity and low interest rate environment, AREIT has further scope for inorganic growth. We have a BUY rating with TP of S$3.55/Unit.

ASEAN Builder's Scoop (4Jun21) - AREIT Divesting 3 AUS Props for ~4.1% Yield

Partner, River Valley Asset Management

River Valley Asset Management

Partner

Singapore-based boutique asset management firm

River Valley Asset Management is a Singapore-based boutique asset management firm. Our team at RVAM strongly believes in being a trusted steward of our clients' wealth across generations.

Each of our fund managers has years of rich portfolio management experience over multiple market cycles at world-class investment houses. We bring our clients the combined strength of our investment team to manage their financial portfolios and to provide bespoke guidance on all aspects of their financial health.

We offer multi-asset class expert investment advice to accredited investors who are family offices, high net worth individuals and institutional investors to preserve and grow our clients' wealth.

The fund management team of the company includes Homiyar Vasania, Anand Ramachandran and Jamshed Desai.

As a mature economy with stable businesses, Singapore's equity benchmarks are dominated by Banks &amp; Government Linked Companies (GLC's) which have grown large over time. The large listed companies in Singapore (private as well as GLC’s) are now facing headwinds from tight labour markets resulting in rising costs and, in the absence of growth, the need to focus on raising productivity.  It is therefore not surprising that the Singapore markets do not excite the average investor. However, within this space we have been finding many hidden gems which have consistently delivered and increasingly fit the needs of a Singaporean investor looking for stable returns in a low growth environment: the REIT marketplace. Over the last seven years the REIT index has delivered over 10% p.a. annualized return which stands in stark contrast to the meagre 4% returns from benchmark STI index.

As a mature economy with stable businesses, Singapore's equity benchmarks are dominated by Banks &amp; Government Linked Companies (GLC's) which have grown large over time. The large listed companies in Singapore (private as well as GLC’s) are now facing headwinds from tight labour markets resulting in rising costs and, in the absence of growth, the need to focus on raising productivity.   It is therefore not surprising that the Singapore markets do not excite the average investor. However, within this space we have been finding many hidden gems which have consistently delivered and increasingly fit the needs of a Singaporean investor looking for stable returns in a low growth environment: the REIT marketplace. Over the last seven years the REIT index has delivered over 10% p.a. annualized return which stands in stark contrast to the meagre 4% returns from benchmark STI index.

Singapore

CapitaLand Ascendas REIT is Singapore's first and largest listed business space and industrial real estate investment trust. It focuses on a diversified portfolio of business and industrial properties, including business and science parks, high-specification industrial properties, data centers, light industrial properties, and logistics and distribution centers across Singapore, Australia, Europe, and the US. Headquartered in Singapore, the company was established in 2002.

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CapitaLand Ascendas (CLAR SP)

ASEAN Builder's Scoop (20Oct21)

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ASEAN Builder's Scoop (03Aug21) - AREIT Boosted by DPU-Accretive Acq

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ASEAN Builder's Scoop (18Jun21) - PRIME/WeWork Lease Restructuring

PRIME/WeWork lease restructuring; Park Hotel Mgmt winding up; IOIPG bidding for Marina View plot; LPCK mktg sales on track for FY21; BKK office...

SCCM Asia Research

ASEAN Builder's Scoop (4Jun21) - AREIT Divesting 3 AUS Props for ~4.1% Yield

AREIT divesting 3 AUS props for ~4.1% yield; CIT plans UK-backed SREIT IPO; Hilton Orchard undergoing rebranding; SG bungalow prices reaching new...

SCCM Asia Research

Singapore - The Hidden Gems

As a mature economy with stable businesses, Singapore's equity benchmarks are dominated by Banks & Government Linked Companies (GLC's) which...

River Valley Asset Management

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