J.P. 摩根-亚太地区-房地产行业-新加坡房地产与REITs：乐观情绪掩盖了基本面走软的事实-2020.1.16-23页.pdf

Asia Pacific Equity Research16 January 2020Equity Ratings and Price TargetsMkt CapPriceRatingPrice TargetCompanyTicker($mn)CCYPriceCurPrevCurEnd DatePrev End DateCapitaLand Commercial TrustCCT SP5,866SGD2.11UWn/c1.90Dec-20n/cn/cKeppel REITKREIT SP3,150SGD1.25UWn/c1.20Dec-20n/cn/cSuntec REITSUN SP3,885SGD1.87UWn/c1.80Dec-20n/cn/cSource:Company data,Bloomberg,J.P.Morgan estimates.n/c=no change.All prices as of 15 Jan 20.Singapore Property and REITsPositive sentiment belies softer fundamentalsSingaporeConglomerates and PropertyMervin Song,CFA AC(65)6882-J.P.Morgan Securities Singapore Private LimitedTerence M Khi(65)6882-J.P.Morgan Securities Singapore Private LimitedCusson Leung,CFA(852)2800-J.P.Morgan Securities(Asia Pacific)LimitedAjay Mirchandani(65)6882-J.P.Morgan Securities Singapore Private LimitedSee page 19 for analyst certification and important disclosures,including non-US analyst disclosures.J.P.Morgan does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.We remain cautious on Singapore office REITs despite improved investor sentiment over the past month due to:(1)softening demand,(2)mismatch between relocation demand and availability,(3)upcoming shadow space,and(4)unfavorable risk-reward given other sectors offer higher yields and/or growth.We reiterate our non-consensus UW ratings on CCT,KREIT and SUN.Worrying signs.According to JLL,for the first time in 10 quarters 4Q19 CBD office rents of S$10.81 psf/mth were flat QoQ.Worryingly,4Q19 absorption of c.140k sqf was the lowest in 2.5 years.This was caused by the macro uncertainty and difficulty in landlords pushing 27%higher rents compared to three years ago.We expect the general caution to persist and potentially slowing co-working sector to result in 1-3%p.a.declines in rents over the next three years.Given share prices lead spot rents by 6-12 months,we remain UW office REITs.Impact of demolitions to benefit fringe offices.The demolitions of Tower Fifteen,Keppel Towers and Shaw Tower will remove c.959k sqf of supply against c.980k sqf of new CBD supply in 2020.However,the three buildings were not fully occupied and the majority of these economy tenants are unlikely to relocate to Grade-A offices,instead moving to fringe locations.We also estimate 350-400k sqf of shadow space from major tenant movements,which should translate to 125-500k sqf of excess supply this year.Coupled with c.1.3m sqf of existing vacant space and potential sub-leasing from Standard Chartered/Deutsche Bank,we believe this should still result in falling rents.Lack of valuation support.Office REITs have been the best performing sector historically in periods of sustained recovery in PMIs as they have offered better relative value,traded at a yield premium to retail REITs,and the differential to industrial yields had been narrow but with prospects of faster DPU growth.However,this may not be repeated as office REITs yields are currently in line with retail REITs and are c.40bps tighter than industrial REITs but with slower DPU growth.Therefore,office REITs at an average yield of 4.5%yield and flat DPUgrowth in FY20 are not compelling investments,in our view.OfficeREITs remains our least preferred sector.2Asia Pacific Equity Research16 January 2020Mervin Song,CFA(65)6882-Office REITsCCT Drag from two major AEIs While the AEIs at Six Battery Road and 21 Collyer Quay over the next two years are expected to deliver a target return of 8-9%and be a medium-term boost to earnings,it will likely result in loss of income which will require CCT to make up the shortfall via capital distributions(c.2%of DI)as the kicker from double-digit rentals isnt sufficient to compensate.Consequently,we project CCT to deliver flat YoY growth in DPU in FY20.Coupled with CCT trading at only 4.2%,(-1.7 s.d.below post GFC mean yield),we believe the risk-reward is not compelling.Thus,we reiterate our UW rating and PT of S$1.90.KREIT Loss of earnings from asset sale.KREIT sold its Bugis Junction Tower in 2019(c.6%of income)at an attractive 3%exit yield.However,as we only assume it will deploy the proceeds from the sale in mid 2020,the loss of income from the sale will result in KREIT only delivering flattish YoY growth in DPU for FY20.In addition,we expect the moderating office rents in Singapore and potential peaking of office rents in Australia to weigh on KREITs share price.Maintain UW rating and PT of S$1.20.SUN DPU still in the process of normalizing.SUN guided that it expects to pay an annual DPU of 9.0-9.5 Scts,down from 10.0 Scts previously.This is to reduce the risk that SUN runs out of capital gains to support its DPU.Based on our estimate of 9.2 Scts for FY19,capital distributions represent c.10%of its DI.Going into FY20,despite the uplift in income from positive rental reversions at its Singapore office and retail portfolio as well as additional earnings from two acquisitions and opening of 9 Penang Road and Olderfleet,we estimate SUN will still need to rely on capital distributions(c.2%of DI)to maintain a flattish DPU.With this modest DPU profile and SUN at least a year away from having a“clean”yield,we see no near-term re-rating catalyst for the REIT.With the majority of investors likely to take a wait-and-see approach,we reiterate our UW rating and PT of S$1.80.We see better opportunities in other REITs.Table 1:Office S-REITs Peer CompBbgMkt SharePrice Upside JPM Book P/BADTVFY19E FY20E FY21E 3Y DPS FY19E FY20E FY21ECodeCap PriceTgtRtgVal3DPS GrowthCAGRYield15-JanMth(US$m)(S$)(S$)(%)(S$)(x)(US$m)(%)(%)CapitaLand Commercial TrustCCT6,0432.111.90-10.0%UW1.821.16 13.5 2.2%0.1%1.0%1.1%4.2%4.2%4.3%Keppel REITKREIT3,1251.251.20-4.0%UW1.380.914.5-1.0%0.0%6.5%1.8%4.5%4.5%4.8%Suntec REITSUN3,8891.871.80-3.7%UW2.090.89 12.3-7.9%0.9%6.0%-0.5%4.9%5.0%5.3%Total/Wgt Avg13,0571.02-1.6%0.3%3.8%0.8%4.5%4.5%4.7%Source:J.P.Morgan estimates,Company data,Bloomberg.3Asia Pacific Equity Research16 January 2020Mervin Song,CFA(65)6882-Still too early to switch back to office REITsOffice REITs the worst performing sectorIn our assumption of coverage report(link)three months ago,we advocated investors be UW office REITs due to the following reasons:1.We expect 1-3%p.a.decline in rents over the next three years due to expectations of softening demand given an uncertain macro environment,slowdown of the co-working sector(30-40%of demand over the past few years)due to potential funding pressures to support expansion,and pushback from tenants after 20%plus increase in spot rents over the last three years.2.Unfavorable risk-reward for the office REITs as other sectors such as industrial REITs offer higher DPU growth and/or yields.3.For KREIT and SUN,there is also the overhang of a potential peak in the Australian office market.See our report on S-REITs heading down under(link).Since then,office REITs have been the worst performing sector,with our two preferred picks,developers and industrial REITs,doing the best.Figure 1:Office REITs have delivered the lowest returns*Developers,(CCT,CIT,UOL and FPL),Office(CCT,KREIT and SUN),Industrial(AREIT,KDCREIT,MINT and MLT),Retail(CT,CRCT,FCT and MCT)and Hospitality(ART,CDREIT and FEHT)Source:J.P.Morgan estimates,Bloomberg.4Q19 demand weakest in 2.5 years with rents flat QoQ for the first time in 10 quartersAs per our cautious stance,based on JLL estimates,absorption of c.140k sqft in 4Q19 was the weakest in 2.5 years.This was reflective of tenants being wary of expanding due to the uncertain macro environment.Likewise,4Q19 CBD office rents of S$10.81 psf/mth was flat q-o-q for the first time in 10 quarters.This follows 1-4%QoQ increases since the lows in 1H17.The inability to push rents higher over the quarter was due to rents being already 27%higher compared to three years ago.95.0100.0105.0110.0115.0Oct-19Nov-19Dec-19Jan-20DevelopersOfficeIndustrialRetailHospitality4Asia Pacific Equity Research16 January 2020Mervin Song,CFA(65)6882-Figure 2:CBD Net Absorption vs.Occupancym sqfSource:JLL and J.P.Morgan.Figure 3:CBD Net Absorption vs.OccupancyS$psf pm(LHS)/%(RHS)Source:JLL and J.P.Morgan.Tenants from upcoming demolitions unlikely to absorb new supplyThree upcoming demolitionsOver 4Q19,tenants at Tower Fifteen(211,000 sqf,owned by Fragrance Group)wereasked to vacate by end-2019,while tenants at Keppel Towers(488,000 sqf)were notified to move out by March 2020.Both Tower Fifteen and Keppel Towers are located in the Tanjong Pagar precinct.Meanwhile,tenants at Shaw Towers(260,000 sqf)have also been asked to leave their premises by 30 June 2020.Based on URA data,Tower Fifteen could be redeveloped into an 800-room hotel while Keppel Towers could be redeveloped into a mixed commercial and residential development.Shaw Tower,is reported to be torn down to make way for a 35-storey office(c.400,000 sqf)and retail building slated for completion by 2023.82%84%86%88%90%92%94%96%98%100%(0.20)0.000.200.400.600.801.001Q132Q133Q134Q131Q142Q143Q144Q141Q152Q153Q154Q151Q162Q163Q164Q161Q172Q173Q174Q171Q182Q183Q184Q181Q192Q193Q194Q19Net AbsorptionOccupancy Rate-30%-25%-20%-15%-10%-5%0%5%10%0.002.004.006.008.0010.0012.001Q131Q141Q151Q161Q171Q181Q19Gross Rent Overall CBD(S$psf pm)Rent QoQ Chg%10.810.0%5Asia Pacific Equity Research16 January 2020Mervin Song,CFA(65)6882-Table 2:Developers are exploring redevelopment of 2.8m sqf of existing officesBuildingNLA(sqf)LocationStatusKeppel Towers 1 and 2(FH)488,197Tanjong PagarOwner has received permission for mixed-use redevelopment-notified tenants to vacate15 Hoe Chiang Road Tower Fifteen(FH)211,350Tanjong PagarFRAG has received permission for hotel redevelopment-notified tenants to vacateShaw Towers260,000BugisNotified tenants to vacate78 Shenton Way(99-yr)362,000Tanjong PagarSold to PGIM,which is seeking mixed-use development for lease top-upFuji Xerox Tower(FH)341,926Tanjong PagarCIT exploring AEI/potential redevelopmentCity House(999-yr)157,916Tanjong PagarCIT exploring potential redevelopmentAXA Building(99-yr)767,358Tanjong PagarPREH exploring redevelopment/divestmentTotal2,588,747Source:Media reports(e.g.The Business Times),company data,J.P.Morgan.But tenants moving to fringe locations rather than core CBD locationsDemolition of older office buildings in the Tanjong Pagar area to take advantage of CBD incentive scheme is a risk we have identified to our negative view on office rents going forward.However,based on commentary from Corporate Locations,the former tenants at Keppel Towers,Tower Fifteen and Shaw Towers have relocated to fringe locations rather than core CBD locations.Zalora(20,000 sqft)formerly at Keppel Towers relocated to 51 Bras Basah Road(ex Manulife building)at Bras Basah.Meanwhile,The Concourse on Beach Road has gained V-Ships(formerly Keppel Towers),Great Ship Global Offshore(Tower Fifteen)and Simmons SEA(Shaw Tower)as tenants.This is not unexpected given office rents in core CBD range from S$10-13 psf/mth versus the S$6-9 psf/mth these tenants may have paid in their former premises that are scheduled to be demolished.Supply may not be as tight as at first glance with added pressure from upcoming shadow space While c.959,000 sqf of office space from Tower Fifteen,Keppel Towers and Shaw Towers appears to offset the c.980,000 sqf(Afro-Asia I-Mark,79 Robinson,Chevron House Redevelopment)of new supply in 2020,we do note that these three office buildings are unlikely to be fully occupied,especially Shaw Towers which notified its tenants of potential redevelopment of the building over a year ago.As discussed earlier,they are also not moving to the new buildings under construction.Moreover,there could potentially be 350,000-400,000 sqf of shadow space over the coming 12-18 months,which may create an overhang on the market through various tenant relocations.These include:(1)Allianz partially relocating some of its operations to 79 Robinson Road from Asia Square Tower 2,where it currently occupies c.85,000 sqf,(2)UBS vacating One Raffles Quay(c.230,000 sqf)to shift its operations to 9 Penang Road,(3)the whole of 55 Market Street,which has been decanted(c.72,000 sqf),and(4)EFG(taking up c.50,000 sqft)and IMF(taking up c.10,000 sqf)relocating from EFG Building and MAS Building to 79 Robinson Road,respectively.Added to this is potential sub-leasing or return of space by Deutsche Bank at One Raffles Quay(currently takes up c.200,000 sqf)and Standard Chartered at Six Battery Road(c.129,000 sqf),should these two banks decide to downsize.In addition,there remains c.1.3m sqf of vacant office space in the CBD,based on JLLs estimates.6Asia Pacific Equity Research16 January 2020Mervin Song,CFA(65)6882-Figure 4:Potential sources of shadow space from tenant movementsExisting BuildingRelocating toTenantsqfAsia Square Tower 279 Robinson RoadAllianz50,000One Raffles Quay9 Penang RoadUBS170,000*55 Market Streetn/an/a72,000EFG Building79 Robinson RoadEFG50,000MAS Building79 Robinson RoadIMF10,000Total352,000*c.230,000 sqft less 60,000 sqft to be potentially taken up by ByteDance.Source:J.P.Morgan estimates,Press reportsFigure 5:Tenants with potential risk of returning or sub-leasing spaceExisting BuildingTenantsqfOne Raffles QuayDeutsche Bank200,0006 Battery RoadStandard Chartered129,000Total352,000Source:J.P.Morgan estimates,Press reportsTable 3:Upcoming office supply until 2023ProjectLocationMicro-MarketAreaNLAPre-Commitment(sqf)(%)2020Centrium SquareSerangoon RdTampines/Eastern SGDecentralised107,0410%Afro-Asia I-MarkRobinson RdShenton WayCore CBD153,5260%Hub Synergy Point RedevelopmentAnson RdTanjong PagarFringe CBD128,4560%79 Robinson Rd(fmr.ASB)Robinson RdShenton WayCore CBD514,00040%Chevron House RedevelopmentRaffles PlaceRaffles PlaceCore CBD312,8530%St James Power StationSentosa GatewayAlexandra/HarbourfrontDecentralised118,392100%Subtotal1,334,26812%2021CapitaSpringMarket StRaffles PlaceCore CBD635,00025%Mixed-Use Executive CentreRochester ParkRochester ParkDecentralised264,7810%Subtotal899,78117%2022Guoco Midtown(GLS)Beach RoadBeach Rd/City HallFringe CBD657,7380%Central Boulevard Towers(GLS)Marina BayMarina BayCore CBD1,150,3000%Subtotal1,808,0380%2023Shaw Tower developmentBeach RoadBeach Rd/City HallFringe CBD400,0000%Subtotal400,0000%Total Overall(2019-2022)4,442,087Source:CBRE,JLL,company data,J.P.Morgan estimates7Asia Pacific Equity Research16 January 2020Mervin Song,CFA(65)6882-Figure 6:Potential excess CBD supply in 2020 despite demolitionsScenario 1Scenario 2NLA of demolished buildings(sqf)(a)959,000959,000Potential Occupancy(b)80%90%Potential Occupied space(sqf)(c)=(a)x(b)767,200863,100%of tenants from demolished building movings to new buildings(d)50%70%Demand from tenants from demolished buildings(sqf)(e)=(c)x(d)383,600604,170General demand(sqf)(f)500,000600,000Total demand (sqf)(g)=(e)+(f)883,6001,20