OSK-DMG Asia commentary.  It was a mixed week for Regional REITs with most marketsdown except for JP, TW and SG. The worst markets in descending order were HK (HK-REITs: -2.5% WoW), MY (M-REITs: -1.8% WoW), TH (hai Prop:  -0.8% WoW) etc, while the only upmarkets include JP (J-REITs:+0.8% WoW), TW (T-REITs:+0.3% WoW) and SG (S-REITs:+0.2%  WoW).  Year-to-date,  J-REITs  maintained  its  pole position in the Regional REITs league table (+25.9% YTD), followed by A-REITs  (+21.7%  YTD)  and  HK-REITs  (+18.0%  YTD)  and  the  three developed markets look set to close the year with a loud bang.

On  the  S-REITs  front,   the  Healthcare  REITs  (+1.1%  WoW) outperformed  for two consecutive weeks, driven this time by First REIT [best performing] (last week was PLife REIT), which was up 2.8% WoW. Only  the  Industrial  REITs  segment  turned  negative  (-0.3%  WoW), dragged  down  by  Sabana  REIT  (-1.6%  WoW)  and  CACHE  (-1.3% Wo). The other segments registered modest growth as seen by Office REITs (+0.5% WoW), Retail REITs (+0.4% WoW) and Hospitality REITs (+0.2%  WoW).  Lippo  Malls  Indonesia  Retail  Trust  fared  the  worst  this week, down 6.7% WoW, in part due to its placement of 117.6m units at SGD0.34 to raise proceeds of SGD40m. Suntec REIT remains the topperforming S-REIT returning +25.3% YTD, while Lippo Malls Indonesia Retail  Trust  has  replaced  Sabana  REIT  as  the  worst  performer  with  a price downside of 15.7% YTD.

Macro  Indicators.  Risk-free  rate  for  SG  remained  flattish  at  2.19%, while  US  was  down  18.4bps  to  2.07%,  reverting  the  US-SG  10-yr spreads to negative territory once again at  -12bps from the normalized level  of  +12bps  the  week  before.  The  USD  was  down  0.8%  WoW  at 1.3123  against  the  SGD.  The  VIX  and  Bond  Volatility  Index  (MORE Index)  were  also  up  78.3%  and  3.7%  WoW  to  21.08  and  68.19 respectively.  The  US  equity  markets  were  roiled  by  falling  oil  prices, while  the  fixed  income  side  remained  relatively  unperturbed.  The  next US FOMC meeting is scheduled this week on 16-17 Dec 2014 and OSKDMG  will  be  monitoring  the  US-SG  10Yr  spreads/USDSGD  currency closely, and its impact on S-REITs price performance.

Commentary
OSK-DMG Asia commentary.  It  was a mixed week for Regional REITs with most markets  down  except  for JP, TW and  SG.  The  worst  markets in descending order were  HK  (HK-REITs:  -2.5%  WoW),  MY  (M-REITs:  -1.8%  WoW),  TH  (Thai  Prop:  -0.8% WoW) etc, while the only upmarkets include JP (J-REITs:+0.8% WoW), TW (TREITs:+0.3%  WoW)  and   SG  (S-REITs:+0.2%  WoW).  Year-to-date,  J-REITs maintained  its  pole  position  in  the  Regional  REITs  league  table  (+25.9%  YTD), followed  by  A-REITs  (+21.7%  YTD)  and  HK-REITs  (+18.0%  YTD)  and  the  three developed markets look set to close the year with a loud bang.

For the week,  Millionaire Property Fund (TH) was the  top-performer, up a whopping 17.6%  WoW,  while  MFC  Amazing  A-la  Andaman  Property  Fund  (TH)  was  down 94.8% WoW. Year-to-date, J-REITs maintained it pole position in the Regional REITsleague  table  (+25.9%  YTD),  followed  by  A-REITs  (+21.7%  YTD)  and  HK-REITs(+18.0% YTD) and the three developed markets look set to close the year with a loud bang. The disappointing and 'in-red' markets include T-REITs (-5.4% YTD) and Thai Prop  Funds  (-0.6%  YTD).  On  individual  counter  basis,  Invincible  Investment  Corp(JP) remained the clear winner, up 145% YTD, while KB Bookook No 1 Development REIT Co Ltd (KR) was most downbeat, returning -87.1% YTD.

On  the  S-REITs  front,  the  Healthcare  REITs  (+1.1% WoW)  outperformed  for  two consecutive weeks, driven  this time by First REIT [best performing] (last week was PLife  REIT),  which  was  up  2.8% WoW.  Only  the  Industrial  REITs  segment  turned negative (-0.3% WoW), dragged down by Sabana REIT (-1.6% WoW) and CACHE (-1.3% WoW). The other segments registered modest growth as seen by Office REITs (+0.5%  WoW),  Retail  REITs  (+0.4%  WoW)  and  Hospitality  REITs  (+0.2%  WoW). Lippo  Malls Indonesia  Retail Trust  fared  the  worst  this  week, down  6.7% WoW, in part due to its placement of 117.6m units at SGD0.34 to raise proceeds of SGD40m. Year-to-date,  Suntec  REIT  (BUY, TP: SGD2.00)  remains  the top-performing S-REIT(in terms of price performance), returning +25.3% YTD, while Lippo Malls Indonesia Retail Trust has replaced Sabana REIT as the worst performer with a price downside of 15.7% YTD. 5D ADTV hovered around the yearly average of SGD73m from a high of SGD153m two weeks ago.

Macro Indicators.  Risk-free rate for SG  remained flattish at 2.19%, while US  was down 18.4bps to 2.07%, reverting the S-SG 10-yr spreads to negative territory once again at -12bps from the normalized level of  +12bps the week before. The USD was down  0.8%  WoW  at  1.3123  against  the  SGD.  The  VIX  and  Bond  Volatility  Index (MORE Index) were also up 78.3% and 3.7% WoW to 21.08 and 68.19 respectively. The US equity markets were roiled by falling oil prices, while the fixed income side remained relatively unperturbed.  The next US FOMC meeting is scheduled this week on  16-17  Dec  2014  and  OSK-DMG  will  be  monitoring  the  US-SG  10Yr spreads/USDSGD currency closely, and its impact on S-REITs price performance.U.S.  stocks  fell  sharply  on  Friday,  leaving  the  benchmark  S&P  500  with  its  worst weekly performance since May 2012, as investors pulled back from the markets in response to oil's free-fall and more weak data out of China.

Oil's declines have underscored concerns about global demand, and with the S&P 500  having  hit  a  record  high  only  last  week,  investors  were  loath  to  fight  the downward pressure on stocks, which accelerated in the final minutes of trading. The S&P dropped 3.5% on the week after seven straight weeks of gains.

The S&P energy sector was down 2.2%  on the day. It is down  16.5%  this year, the worst  performing  of  10  S&P  sectors.  Dow  components  Exxon  Mobil  and  Chevron Corp both hit 52-week lows as U.S. crude oil fell below $58 a barrel, hitting five-year lows, on expectations of reduced worldwide energy demand.The  Dow  Jones  industrial  average  fell  315.51  points,  or  1.79%,  to  17,280.83,  the S&P 500 lost 33 points, or 1.62%, to 2,002.33 (50-day moving average at 2,000) and the Nasdaq Composite dropped 54.57 points, or 1.16%, to 4,653.60.Disappointing data that suggested China's economy softened in November pushed the materials sector down 2.9%, making it the worst -performing S&P sector on the day.  The  drop  in  oil  and  weakness  in  China  overshadowed  strong  U.S.  consumer sentiment, which hit an eight-year high. Some investors hope declining gas prices will boost consumer spending enough to offset the energy sector's woes. However, there is  concern  that  rising  volatility  in  the  energy  market  will  migrate  to  equities  as investors worry about slack demand worldwide. The CBOE Volatility Inde x, or VIX, rose 5% to 21.08 on Friday as investors paid up to hedge against losses.   The broad S&P  500  index  posted  15  new  52-week  highs  and  35  new  lows;  the  Nasdaq Composite recorded 52 new highs and 160 new lows.

S-REITs News 
Source: Business Times, Straits Times, CNA, JLL, CBRE, Bloomberg and Thomson Reuters.Keppel DC REIT  units start trading on a strong note.  KEPPEL DC REIT  made a strong debut on the Singapore Exchange mainboard on Friday, with its units rising as much as 5.9% to hit an intra-day high of 98.5 Singapore cents. The counter started at 98 cents  -  against the offer price of 93 cents  -  when trading commenced at 2pm. It closed at 96.5 cents -  up 3.8%  -  after 105 million units changed hands, making it the day's  most  actively  traded  counter.  Meanwhile,  Keppel  Land  said  that  it  had completed the divestment of its stakes in two property assets  -  located in Serangoon North  and  Tampines  respectively  -  to  Keppel  DC  REIT.  Keppel  Land  received  net proceeds of about SGD96m and will recognise a gain of about SGD65.9m. OSK-DMG:  We have expected the Keppel DC REIT IPO to do well in the near-term and rise 2-4% on the first day because of its strong sponsor backing and cornerstone investors,  particularly  Wellington  (7.3%)  and  Eastspring  (3.2%).  Our  longer-term concern weigh on its cap rates and  higher  corporate  efficiency to boost distributable income.  The  cap  rates  cited  by  independent  valuers  for  all  the  eight  data-centres range from 6.97% to 12.25% at the asset level. Yet, the REIT is only offering a yieldof 6.8% at the equity level, which is on the low side and below cap rates.

LMIR  Trust  to  Raise  SGD40m  for  Acquiring  Lippo  Mall  Kemang.  LMIRT Management Ltd.) in its capacity as manager of Lippo Malls Indonesia Retail Trust (LMIR  Trust),  is  proposing  to  carry  out  a  placement  of  117,647,000  New  Units  to institutional and other investors at an issue price of SGD0.34 per New Unit to raise gross  proceeds  of  approximately  SGD40.0m.  Approximately  97%  of  the  Gross Proceeds will be used to fund the acquisition of Lippo Mall Kemang in Indonesia.The Manager, Standard Chartered Securities (Singapore) Pte. Limited (the financial adviser) and BNP Paribas, acting through its Singapore branch, have entered into a placement agreement in relation to the Placement.  As part of its consistent growth strategy,  LMIR  Trust  has  recently  secured  approval  from  Unit  holders  for  the acquisition of Lippo Mall Kemang at a purchase consideration of SGD385.7m, which is expected to increase the size of LMIR  Trust's portfolio by approximately 27% toSGD1.8b.  After a recent rview of LMIR Trust's  capital structure, the Manager has decided  to  only  raise  approximately  SGD40.0m  under  the  Placement  instead  of SGD110.0m  which  was  initially  envisaged.  The  difference  in  the  amount  will  be covered by additional debt and internal sources of funds.

Cambridge  acquiring  asset  in  business  park.  Cambridge  Industrial  Trust  is acquiring a property in Singapore's pioneer business park for  SGD28m. This is the industrial real estate investment trust's first asset in a business park.Situated  at  16  International  Business  Park  in  Jurong  East,  the  property  is  a threestorey  purpose-built  building  with  a  mezzanine  and  a  basement  carpark.  It  has  a gross floor area of some 6,434 square metres and a remaining land tenure of about 41.6 years and is near the Jurong Gateway commercial hub.  Upon completion of the deal  by  the  end  of  the  year,  CIT  will  lease  the  property  back  to  the  vendor  M+W Singapore for 11.6 years, with options to renew for two consecutive five-year terms.

The estimated total cost of the acquisition is SGD30.9m. This includes  SGD2.5m  for an  upfront  land  premium  to  JTC;  an  acquisition  fee  of  SGD0.3m  payable  to Cambridge Industrial Trust Management (CITM), the manager of CIT; and  SGD0.1m in professional and other fees and expenses. The deal will be funded through  cash and existing debt facilities.

For  sale:  Thong  Sia  Building  at  SGD400-420m.  FREEHOLD  commercial  and residential property Thong Sia Building, near the Paragon shopping mall, has been put  up  for  sale  for  the  first  time  since  it  was  built  in  1981  and  the  vendors  are expecting  offers  of  between  SG400-420m.  This  translates  to  SGD2,559-2,687  psf over  the  existing  gross  floor  area  (GFA)  of  about  156,300  square  feet.  If  the government allows the sale of an adjoining road that just serves Thong Sia Building, the  purchaser's  costs  could  go  down  to  SGD2,414-2,532  psf,  said  sole  marketing agent Jones Lang LaSalle Property Consultants (JLL).

More than 80%  of the owners, measured both by share value as well as strata floor area, have consented to the collective sale  of the 26-storey building along Bideford Road. The building has a land area of about 21,600 sq ft, and comprises seven levels of commercial space and a 19-level residential tower of 37 apartments. Karamjit Singh, JLL international director, noted that Orchard Road was a relatively short  stretch  that  spans  about  2.4  kilometres,  starting  from  the  junction  of  Delfi Orchard, right up to Dhoby Ghaut.    "Based on a study carried out by JLL, there are only  50  non-residential  buildings  (hotels,  commercial  and  mixed-use developments) located directly on or off Orchard Road. Of these 50 buildings, 31 are freehold  or  999-year  leasehold;  while  the  rest  have  99-year  leasehold  tenures  or less."

Of  the  31  freehold  assets,  22  are  large-scaled  strata-titled  developments  such  as Lucky Plaza and Orchard Towers, or buildings owned by real estate investment trusts (REITs) and long-term investors such as The Paragon and Shaw Centre. "We take the view that the chances of these assets being offered for sale in the medium -term are low. This effectively leaves only  nine  or so potentially tradable freehold assets in and around Orchard Road," said Mr Singh.

He added that over the last 10 years, only  three  freehold, non-residential Orchard Road  assets  have  changed  hands.  The  Grand  Park  Orchard  building,  formerly known  as  Crown  Prince  Hotel,  changed  hands  twice  in  2013  and  2005,  while  the other  two  complete-building  transactions  include  Pacific  Plaza  and  268  Orchard Road.    Given  that  the  building  is  near  Mount  Elizabeth  Hospital,  Gleneagles  and Paragon Medical, Mr Singh said, there is potential for the purchaser to incorporate a portion  of  medical  suites  within  the  commercial  space.  "There  are  very  few opportunities  to  acquire  medical  suites  at  the  freehold  Gleneagles  Medical  Centre and Mount Elizabeth Medical Centre (which has a balance lease of 61 years), which explains the latest deals at record levels of SGD8,525-SGD9,002 psf, respectively," he added. The tender exercise for Thong Sia Building closes on Jan 28 at 2.30 pm. Mall in Little India offered for sale at SGD320-350m.  THE Verge and Chill @ The Verge, a mall located in Little India, are being offered for sale with an indicative price of SGD320-350m.

The Verge comprises a six-storey mall with two basement levels. Chill @ The Verge comprises an eight-storey building with two storeys of retail units on levels 1 and 2 and a 6-storey car park with 395 lots and four coach bays.  The two properties are connected by link bridges at levels 2, 5 and 6 and provide 238,527 sq ft of retail gross floor  area,  anchored  by  supermarket  Sheng  Siong,  with  an  overall  oc cupancy  rate above 80%.

Extensive addition and alteration works were carried out in The Verge in  2009.  The Verge is the only commercial value-add opportunity currently on the market for sale. Timing is optimum for an asset refurbishment or re-positioning of The Verge and any works will coincide with the completion of significant infrastructure in the surrounding area in the near future.  In recent years, substantial road widening and reinstatement works have been undertaken on Sungei Road, which is the main road in front of the mall. These are scheduled to be finished in early 2015. In addition, transport links to the  property  are  expected  to further  improve  with  the completion  of  two  new  MRT stations,  Rochor  and  Jalan  Besar,  which  form  part  of  the  Downtown  Line.  These 
stations are due to open in 2016 and 2017, respectively. The Rochor MRT station will also have an underground "pop up" entrance/exit located at the  entrance to Chill @ The Verge.

The Verge is located on a 'white' site, which means a variety of alternative uses could be considered. Recent feedback has indicated that serviced apartments and offices could be considered. Partial conversion to these uses and enhancement works could substantially  maximise  the  property's  income  potential  and  capital  value.  The property  will  be  sold  by  Expressions  of  Interest;  submissions  are  due  on  Jan  27, 2015 (Friday) at 3pm. JLL has been exclusively appointed to offer the sale.

The Verge was opened as Tekka Mall in 2003 and owned by DRB-Hicom's Corwin Holdings,  but  it  ran  into  problems  attracting  shoppers.  It  was  relaunched  as  The Verge by Knight Frank in 2009, with the goal to reposition it as an IT, lifestyle, and F&B hub. Hiap Hoe Hldgs buys all units at Treasure on Balmoral. Hiap Hoe Group is selling all  48  units in  its  District  10 project,  Treasure  on  Balmoral,  to  avoid paying further extension fees under the qualifying certificate (QC) rules.

It  disclosed  on  Monday  that  its  controlling  shareholder,  Hiap  Hoe  Holdings  (the investment firm of the founding Teo family), has entered into an agreement to acquire all  the  shares  in  Hiap  Hoe  SuperBowl  JV  Pte  Ltd,  which  owns  the  properties,  for SGD72.83m after accounting for shareholder loans and other liabilities. This is based on a market value of SGD185m or SGD1,789  psf  for the 103,439 sq ft project. Hiap Hoe  SuperBowl  JV  is  owned  by  Hiap  Hoe  Group  and  its  subsidiary  SuperBowl Holdings.
The  last  expression  of  interest  (EOI)  launched  in  July  for  the  project  did  not  draw satisfactory offers, with the highest offer at SGD1,750 psf, below the guided price of SGD1,850 psf.  The project was first launch in September 2012  at an initial launch price  of  SGD2,044-2,375  psf,  and  received  temporary  occupation  permit  (TOP)  in November 2012, so the developer has to pay extension fees for unsold u nits from this November. Some SGD5.52m of fees were paid for a further six months from Nov 2.

In September, Hiap Hoe Group's unit HH Residences mopped up the unsold units on the top floors of two of the group's projects  -  Skyline 360°  at St Thomas Walk, and Signature at Lewis - also to satisfy QC conditions.

OSK-DMG:  Recall  that  under  the  Residential  Property  Act,  housing  developers whose shareholders and directors are not all Singaporeans have to get a Qualifying Certificate  (QC)  to  buy  residential  property.  QC  holders  are  given  permission  to purchase residential land and property solely for development and sale of the units, and  not  for  investment  purposes.  These  conditions  are  imposed  to  control  foreign ownership of land in Singapore, under the purview of the Singapore Land Authority. QC holders are required to sell all units within two years of obtaining the temporary occupation permit (TOP). They are not allowed to rent out unsold units.  QC holders can  pay  extension  charges  to  extend  the  time  period  in  the  conditions  of  the Qualifying Certificate at 8%, 16% and 24% of the property purchase price for the first, second and third and subsequent years of extension respectively. The amount is pro rated based on the proportion of unsold units.

Hiap Hoe's case clearly demonstrates the punitive nature of the QC requirements on listed  developers,  with its time-escalating  extension  charges.  In this  instance,  Hiap Hoe's  controlling  shareholder  (Hiap  Hoe  Holdings)  is  willing  to  incur  the  15% Additional  Buyer's  Stamp  Duty  (ABSD),  than  afford  the  8/16/24%  QC  extension charges. It is also unlikely that  Hiap Hoe Holdings  is looking at selling the properties in  the  near  term,  as  it  will  incur  another  round  of  Seller's  Stamp  Duty  (SSD)  at 16%/12%/8%/4%  if  it  disposes  the  properties  within  4  years  of  acquisition, highlighting possibly the developer/Teo family's  near-term  downbeat outlook  on the Singapore prime residential market. In this lifeless property market, we expect more prime residential developers to follow Hiap Hoe's footsteps as their two-years after TOP deadline approaches for those holding a substantial number of unsold units. Shophouse  deals  down  but  prices  stay  resilient.  The  number  and  value  of shophouse transactions so far this year is roughly half that of last year, as demand has  been  hit  by  tightened  availability  of  loans, a  compression of  shophouse  yields and investor interest being diverted to overseas properties. Prices in choice locations in the Central Business District, however, are still holding given the limited supply and the  profile  of  owners,  mostly  deep-pocketed  investors  that  are  happy  to  continue renting out their premises if they cannot reap significant capital appreciation. CBRE's analysis  of  URA  Realis  data  shows  that  101  caveats  have  been  lodged  for shophouse transactions so far this year totalling  SGD548m, down  from  206 caveatsadding up to SGD1.27b in 2013.

In the first half of last year, SGD922m worth of shophouses changed hands; however the onset of the total debt servicing ratio (TDSR) framework in late -June 2013 has caused some buyers to hold back their purchase plans. Shophouse sales slipped  to SGD347m  in the second half of 2013 before easing further  to SGD277m in H1 this year  and  SGD271m  so  far  this  half.  However,  these  figures  do  not  include  deals.

Source: OSK-DMG