StockPick

1. Why are there so many impending REIT launches (MapleTree, Prime, CentrePoint)?
2. Are REITs in general losing market favour, with the yield now 4-5%?
3. Are investors switching from Suntec REIT to other REITs? If so, what are the reasons?
4. Are investors dumping Suntec REITs in anticipation of the newer REITs that will be launched with better yields, like Mapletree?

Why So Many Impending REIT Launches?
When REIT was first started in Singapore, the yields were much higher at 7-8% and they were offered at a discount to NAV. Even then, there were few takers and it took 1-2 years before investors started to chase the prices up, till the current yield of 4-5% and even at a premium to NAV. The reasons for the surge in market interest in REITs are likely,

1. Poor stock market returns prior to 2005
2. Low bank interest rate (1.5% for FD even now)
3. Good track record of the pioneer REITs, CMT and A-REIT

After CMT and A-REIT, the market demand have been positive for subsequent IPOs of CCT (issued only to Capitaland shareholders), Fortune and Suntec. New units issued by exisiting REITs had also been easily abosrbed by investors.

Thus, many organisations have announced their intent to launch REITs and this includes MapleTree, Prime and CentrePoint Properties. I also believe many organisations are expecting the good times to end soon (for REITs) as we see improving GDP growth (which means investors may switch to growth stocks) and increasing Fed interest rates (4-5% REIT yield becomes unattractive if bank interest rate goes up) ie. they will not be able to price their IPO as high if they delay it.

Are REITs Losing Market Favour?
Although Suntec prices has been dropping, that of CMT and A-REIT has been appreciating while those of CCT (despite Temasek off-loading their stake to the mkt) and Fortune (despite new units being issued) had remained steady.

The forecasted yield for the local REITs is 4-5%. Suntec yield is the 2nd best (Fortune is top as it's considered riskier with assets in HK) at aro' 5% for current mkt price of $1.16.

But, I think 4-5% yield is getting unattractive. With T-Bills now at 2%, the margin of safety is only 2-3%. The only way for the yield to improve would be for the REIT to increase their rental or to acquire yield acreditive assets. The former will need time to carry out as most tenants are on 2-3yrs lease and would very much depend on the health of the economy. For the latter, the impact on the yield gets smaller as the REIT grows in size. The other way would be for the share price to drop, which is what is happening now with Suntec.

Thus, watch out for the bank interest rate. If the risk-free rate were to go up further, you may be left carrying the baby :D

Are Investors Switching from Suntec REIT to Other REITs?
It would appear so as only the price of Suntec is dropping. In terms of biz structure, the closest competitor is CMT, with its focus on shopping malls (Suntec has a portfolio of Malls + Office). The different price direction of Suntec and CMT does appear to indicate that investors are switching from Suntec to CMT.

There were also recent news that CMT may acquire Bugis Junction and thus regain its No.1 REIT position from Suntec. CMT also enjoys having a strong parent, whereas Suntec do not have any dominant shareholder. In another country, investors would have love Suntec for the same fact :D

I believe the price drop in Suntec is also likely due to their silence (2 weeks now) on their recent acquisitions. Investors who are sitting on good profits from the $1 IPO launch are likely taking profit due to the uncertainties of,

1. Are Suntec over-paying for the acquisitions?
2. How much yield is it acreditive?
3. How are Suntec going to fund the new acquisitions? How many more new shares to be offered and at what discounts?

Based on publicly available info, I believe the above are the main reasons why many investors are switching from Suntec to CMT.

Are investors dumping Suntec REITs in anticipation of the newer REITs that will be launched with better yield?
There will likely be an impact, esp. if the newer REITs offer 6-6.5%, which is better than what Suntec yield now. In fact, it should impact all currently listed REITs which have lower yields. But, I think what will likely happen is that the new REITs' price will appreciate when it's listed till the yield is closer to 5%.

Currently, most of the listed REITs (except Suntec vs CMT) are focussed on the different property sectors and thus enjoys some share price protection. However, the impending launches of newer REITs will definitely change the landscape.

• MapleTree (Logistics Assets) may impact A-REIT more
• Prime (Ngee Ann City) may impact Suntec and CMT more
• F&N (CentrePoint) may impact Suntec and CMT more

Thus, the Shopping Malls REITs does appear to be under a bigger threat as investors are going to be spoiled for choices. We may even be seeing this impact now as investors appears to be favouring CMT vs Suntec.

Announcements / News

1. 22-Apr ($1.22) : Metro accepts Suntec offer for Ngee Ann City
2. 27-Apr ($1.22) : Suntec REIT's DPU Exceeds Forecast by 5.7%
3. 4-May ($1.23) : ERGO offer accepted by Metro
4. 6/7-Jun ($1.32) : Peaked. Run up fm 1-Jun @ $1.24
5. 10-Jun ($1.28) : Mr Li Ka Shing sold Suntec till 4.947% (63,774,300). Dropped till 13-Jun @ $1.25
6. 15-Jun ($1.25) : Fortune Real Estate Investment Trust ("Fortune REIT"), is issuing 318,796,148 new units in Fortune REIT ("New Units") at a price of HK$6.23 per New Unit.
7. 17-Jun ($1.25) : Temasek offloads CCT @ $1.50
8. 21-Jun ($1.25) : Suntec REIT may be feeling added pressure on a report in the Business Times that its tenant UBS has signed a lease for 10 floors or 200,000 square feet of the 50-story north tower of the One Raffles Quay office building that is being constructed at the new Marina Bay downtown area. Dropped to $1.21 on 29-Jun
9. 29-Jun ($1.21) : BT reports Suntec REIT is close to buying 1 bln sgd worth of office and commercial properties from Wing Tai and City Developments
10. 30-Jun ($1.22): Suntec REIT said it is buying a total of 12 properties from City Developments and Wing Tai for about 1.03 bln sgd, making it the largest real estate investment trust by asset size and net lettable area in the city state
11. 7-Jul ($1.22) : Ergo is on track to raise about S$500m selling shares in the new Prime REIT next month. The listing is likely to be in mid-August. Prime REIT owns about S$1.3b of retail and office properties in Orchard Road. Prime REIT's gearing is likely to be about 31% (Debt/ Assets) and the trust will likely distribute 5.11 cents per share in 2005 and 5.24 cents per share in 2006.
12. 12-Jul : BT report on CMT possible deal on acquiring Bugis Junction. Price dropped fm $1.22 on 11-Jul close to a $1.16 on 15-Jul
13. 15-Jul : News report that MapleTree will do a press release on 18-Jul

Comments

1. Looking at the Price vs News data, it'd appear that Suntec prices ran up fm $1.24 on 1-Jun and peaked at $1.32 on 6/7-Jun while Mr Li is selling down his stake. When it was announced on 10-Jun that Mr Li's stake is below 5%, the price drops back to original levels of $1.25 on 13-Jun.


2. The BT report on 21-Jun abt Suntec losing a key tenant also appears to cause Suntec price to drop further to $1.21 on 29-Jun. The arrest on the drop is due to another BT report on Suntec being close to acquiring seets from CDL and Wing Tai, which was subsequently confirmed on 30-Jun.


3. Another round of price decline started on 11-Jul fm $1.22 to $1.16 on 15-Jul. This appears to be due to the BT report on 12-Jul abt CMT possibly acquiring Bugis Junction and regaining the No.1 REIT position.


4. Both Suntec & CMT dropped on 15-Jul and this could have been triggered by the news of the MapleTree press release this coming 18-Jul.

If you look at the Suntec vs CMT price chart below, there appears to be a delayed inverse correlation starting from 4-Jul when CMT starts going up while that of Suntec started to decline on 5-Jul followed by a sharper decline on 11-Jul.

It does appear that the Prime REIT announcement on 7-Jul and the report on 12-Jul on CMT possibly acquiring Bugis Junction are the main causes of the recent price decline of Suntec.

The news of MapleTree planning a news release on 18-Jul may have contributed to the decline on 15-Jul.

The earlier price boost in B/Jun followed by its decline is likely triggered by the selling of Mr Li's stake in Suntec to below 5%.

Hmmm... BT also seems to have a very strong influence on the price of Suntec :D

Reference : REIT News Posted at BullRun

Disclaimer : The above conclusions are drawn using publicly available info. I may also have missed out other available info. Please do not solely rely on the above to make any investment decision.

# posted by Anonymous @ 7/17/2005 11:48:00 AM