Office REITs and KepCorp (29 Mar 2010)

By Carmen Lee
Mon, 29 Mar 2010, 08:34:47 SGT

Market Pulse: Office REITs and KepCorp (29 Mar 2010)

FOCUS

Office REITs: Comparing the four office REITs

Summary: Office REITs Frasers Commercial Trust (FCOT), K-REIT Asia (K-REIT), CapitaCommercial Trust (CCT) and Suntec REIT (Suntec) are vulnerable to negative rent reversions in FY10-11. While REITs may be hit by the appetite for newer buildings, we believe tenants will still favor quality assets such as Six Battery Road. We estimate that S$2.4b of office REIT loans mature in both 2011 and 2012. The bulk of the maturities are for Suntec and CCT loans. Quality sponsors and quality assets will continue to be crucial to securing competitive pricing. Office REITs trade at an average forward yield of 6.9%. They trade at an average price-to-book of 0.71x, which compares favorably to the broader S-REIT sector. We have BUY ratings on both Suntec and CCT as we feel their current valuations more than reflect the challenges facing the office sector. We do not have a rating on FCOT and K-REIT. (Meenal Kumar)

Keppel Corporation: Still attractive despite recent out-performance

Summary: Keppel’s offshore marine arm has announced about S$1.65b worth of orders YTD (accounting for about 40% of our FY10 order estimate). For FY10, we expect the revenue percentage contributions from the infrastructure and property segments to grow to about 26% and 14% respectively, up from 20% and 12% previously. Infrastructure has been identified as a growth area for the group, and we also expect the property segment to perform well. Our property analyst has recently increased net profit estimates for the Keppel Bay Project as well as Keppel Land’s fair value estimate. As such, we are raising our fair value estimate on the stock to S$10.20 (prev S$9.93) based on SOTP valuation. We reaffirmed Keppel as one of our top picks in our report (27 Jan 2010) and the stock has done well ever since, appreciating by about 12.2% compared to the FTSE Oil and Gas index’s 6.6% rise. Despite the out-performance, we maintain our BUY rating given a total expected return of about 14%. (Low Pei Han)

For more information on the above, visit www.ocbcresearch.com for detailed report.

NEWS HEADLINES

- All 100 suites launched at the new Parkway Novena Hospital have been taken up.

- Hengxin Technology intends to seek a dual primary listing of its shares in Hong Kong.

- Mongolia’s Golomt Bank is considering the Hong Kong and Singapore exchanges among others as it plans to go public as early as 2012.

- Cogent Holdings reported a more than doubling in net profit to S$17.7m in 2009 with the help of exceptional items.

- Singapore-based KrisEnergy has snapped up a total of seven E&P concessions since its establishment last September.

- Visitor arrivals to Singapore surged 24.2% YoY in February to a record 857k.

- The SGX will offer a new futures contract based on the soon-to-be launched Nikkei Stock Average Dividend Point Index by 3Q10.

- A unit of ST Engineering has won a contract of about US$165m to build a fast missile craft.

Please refer to the full report for more information and additional disclosures.

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