Reduced from 0.83 to SGD 0.77
Closing price September 27, 2013 SGD 0.79
Positives mostly priced in
Action: Neutral; positives mostly priced in
SGREIT has outperformed the other REITs year to date (+0.6% vs. FSTREI’s -5.6%). Our estimates suggests SGREIT offers a reasonable return over the long-term risk -free rate even if we were to assume a longterm cost of debt, but the positives are mostly priced in, in our view.
Catalyst: Still on the lookout for acquisitive growth
Notwithstanding the earlier acquisition of Plaza Arcade in Perth, SGREIT’s gearing remains relatively low at 0.3x, and this suggests to us that the manager may still be on the lookout for acquisitive growth though the tight yields could mean yield accretion is now harder to come by.
Valuation: TP cut to SGD0.77 (from SGD0.83)
We cut our TP to SGD0.77 (from SGD0.83) chiefly to reflect a lower NAV estimate of SGD0.77 (from SGD0.92, on a 50bp increase in cap rates for SG assets and CPU conversion), which is offset by a higher FY14F DPU forecast of 4.9Scts (from 4.7Scts) and lower ascribed FY14F yield spread of 4.4pp (from 4.9pp).
As a cross-check, our current TP translates into a P/B multiple of 0.9x based on the end-June book value SGD0.88, which represents a premium over the average multiple of 0.76x at which SGREIT has traded since 2006. Given the limited supply of new prime retail space in FY13-15F, a premium for SGREIT’s prime retail assets in Orchard Road could be justified, in our view.
Our TP of SGD0.77 implies a potential total return of 3.7% (potential downside 2.5% + FY14F yield 6.2%). We maintain our Neutral rating.
Publish date: 02/10/13