By Carey Wong
Mon, 12 Jul 2010, 08:36:20 SGT

Market Pulse: Singapore REIT sector and Keppel Land (12 Jul 2010)

FOCUS

S-REITs: Guidance could diverge at 2Q10 results

Summary: Economists are increasingly turning positive on Singapore, with a median real GDP growth forecast for 2010 of 10.65% (Bloomberg). Singapore’s strong growth numbers are being achieved against a backdrop of moderating global growth. As such, we believe we may see a divergence in guidance given by S-REIT managers at 2QCY10 earnings, driven by the degree of the REIT’s exposure to Singapore versus other economies. We remind investors that while market attention has been on a correction, the FTSE REIT index is, in fact, up 2.3% year-to-date at 632.16 points – a gain of 126% against its March 2009 low. Valuations for several REITs, especially the larger cap plays that are trading at a significant premium to book value, are increasingly looking fairly priced, in our opinion. As such, we are maintaining our NEUTRAL view on the S-REIT sector. We prefer mid-to-large cap REITs that have a stable-to-positive earnings outlook, strong balance sheets, and that are still trading at attractive yields and discounts to book value. (Meenal Kumar)


Keppel Land Ltd: Topping-out of Ocean Financial Centre

Summary: Last week, Keppel Land (KepLand) held a ceremony for the topping-out of Ocean Financial Centre (OFC). Pre-commitment for OFC has now increased from 31% (as announced in Apr 10) to 63% now. OFC has a net lettable area of approximately 850,000 sq ft and is expected to be completed in 2Q11. We are encouraged by the strong level of pre-commitment at MBFC and OFC ahead of their completions and have adjusted our long-term rental growth rate from 3% to 4% and lowering our valuation cap rate by 75 basis points to 4.25% for the new office buildings. With the adjustments, our fair value of KepLand, which is pegged at parity to RNAV, has now been raised to S$4.50. With an upside potential of 12.5%, we maintain our BUY rating on KepLand. (Foo Sze Ming)


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


NEWS HEADLINES

- Retailers are reporting both bigger crowds and higher sales at the Great Singapore Sale this year.

- Total assets managed by the fund management industry in Singapore rose to S$1.2 trillion in 2009, up 40% compared to end 2008.

- According to Reuters, Wilmar is seeking to borrow over US$1b to help fund its purchase of Sydney-based CSR’s sugar business.

- Delong Holdings has redeemed RMB346m worth of bonds less a mandatory early redemption discount.

- Engro Corporation has extended a shareholder loan of S$8.48m to HB Investments (China) Pte Ltd for financing the development of Tangshan Nanhu Eco City.

- City Developments has sold 96 out of the 120 units released in the first phase of its 368 Thomson condo.

- Out of the 85 units released at The Terrene so far, UOL Group has sold about 50 units.

- Asia Power Corp has agreed to buy an effective interest of 80% in three hydropower plants in China for S$15.73m.