DBS Equity Research: Wired Daily 25 Sep 2014

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Publish date: Thu, 25 Sep 2014, 03:16 PM

Ascendas Hospitality Trust - Potential disposal of 50% interest in Pullman Cairns

Ascendas Hospitality Trust (ASCHT) announced that together with its 50% joint venture partner, Melic Pty Limited, it is in discussions with a number of parties on the potential divestment of its Pullman Cairns International property. The 321 room hotel was valued at S$75.7m (A$65m) as at 31 March 2014 and represented 3% of the REIT's portfolio by value. ASCHT noted that the discussions are preliminary and non-binding in nature and is part of the REIT's active asset management strategy to free up or recycle capital for more

productive use. While it is unclear whether ASCHT will divest its interest in Pullman Cairns International, we would view such a transaction in a positive light if it is able to dispose the property at favourable price and invest the proceeds in higher yielding/growth properties. We maintain our HOLD recommendation and target price of S$0.77 for now.

Singapore eDevelopment proposes to issue listed and secured Perpetual Bonds of up to S$300m with an 8% annual coupon and a share of annual profits of property development projects to be funded, as well as a 100-to-one consolidation of its shares, to accelerate its strategy for corporate recovery. The Perpetual Bonds will be issued in denominations of $100 each and will entitle the bond holder to receive annual distribution of 8%, payable twice a year in arrears.

Metech International is investing in Pulai Mining via the subscription of RM$1.3m Convertible Loan. Pulai Mining has an exploration licence for gold and other minerals covering an area of 3,700 hectares, equivalent to approximately 37 sq km. It has four mining licence concessions and has a further four mining licence applications under determination. Integral to Pulai Mining's strategy is a diamond drilling program currently underway at its Peninsula Project area.

Swissco Holdings has established a S$300m Multicurrency Medium Term Note Programme. The proceeds will be used for general corporate purposes and working capital needs.

Investment sales of property - big-ticket transactions of at least S$10m - have risen this quarter, on the back of a more than tripling in the value of hospitality assets sold, mainly in connection with the listing of Frasers Hospitality Trust. Moreover, office transactions have continued to post stellar performance with rental recovery firmly in place and expected to continue amid tight supply. According to figures from Savills Singapore, nearly S$5.4 bn of investment sales were transacted this quarter up to Sept 23. This is 13.6% higher than the Q2 figure of S$4.7 bn and the best showing in four quarters. However, the Q3 number is 61.2% down from a year ago.

Singapore Grade A office rents are expected to rise to their highest levels since 2008 by year's end, commercial real-estate services firm Cushman & Wakefield predicted. This comes as average Grade A overall rents have already risen to their highest in three years to S$10.20 per square foot per month -2% higher than a quarter ago, and 9.9% stronger than a year ago. The third quarter became the sixth consecutive quarter of rental increases, a result of the increasing scarcity of Grade A space in areas such as Marina Bay and Raffles Place.

The average monthly gross rents for prime ground-floor retail space in Orchard Road, however, will either stay flat or dip by one per cent for the rest of this year, following a mildly softer Q3 showing, according to a Colliers International report. This is because malls there are highly dependent on the tourist dollar and the weak visitor arrivals since March is likely to exert some pressure on malls in Orchard Road. Already, rents of prime retail space here have been kept in check this quarter - despite healthy leasing activities - as a result of weakness in tourist arrivals and weaker retail sales. The average monthly gross rents of prime retail space in Orchard Road softened by 0.5% to S$36.25 per sq ft from the previous quarter. Out in the regional centres, however, rents rose 0.3% to S$33.72 per sq ft from the last quarter.

China's economy will likely grow faster than previously thought in 2015, according to the International Monetary Fund (IMF). The IMF expects growth in China to be likely "well above" 7% next year, downplaying the risks of the cooling property market in the world's second-largest economy. The IMF has a 7.4% growth forecast for China for 2014, slightly below the government's official target of around 7.5%.

Source: DBS

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