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Brokerage singles out Ascendas-Reit, Suntec Reit and Ascott Residence Trust as interesting counters

DESPITE the recent stock market volatility, UOB Kay Hian is recommending clients to be overweight in the real estate investment trust (Reit) sector, citing its resilient fundamentals, higher yields and defensive nature. The brokerage picks out Ascendas-Reit, Suntec Reit and Ascott Residence Trust as the interesting counters on its watchlist.

In a report, UOB Kay Hian says that Reits with superior management capabilities and asset enhancement potential could outperform the pack with attributes such as established track records, large and diversified portfolios, ‘better tenant profiles or stronger parental support’.

Looking purely at yields, the brokerage identifies office Reits as a sector to watch out for, as its lower yields should improve if tight office space supply continues to drive up office rents. Also, Suntec Reit looks attractive with a 4.15 per cent yield and is well positioned to benefit from the upcoming integrated resorts.

The report singles out A-Reit as having the ‘highest quality’, with a yield of 5.48 per cent. ‘Hi-tech industrial space and business parks are gaining popularity, owing mainly to the spillover of demand for office space and rising office rents,’ it says.

In the hospitality segment, UOB Kay Hian said a strong interest in Ascott Residence Trust has driven its yields down to 3.18 per cent. ‘Although CDL Hospitality Trust has a low yield of 2.79 per cent, it is the only Reit with exposure to the hotel sector and will be a beneficiary of the booming tourism industry arising from the re-making of Singapore’.

Among the plays with mostly overseas portfolio, it notes First Reit’s high yield of 8.8 per cent, but adds that this also reflects its higher risks.

In the report, UOB Kay Hian says it expects interest rates to fall soon, and this will make Reits and other fixed-income instruments look attractive in terms of yields. Also, cost of funding for acquisitions should fall with high-yield accretions from new acquisitions. ‘We see room for further upside for office rentals, especially for prime office space where supply is still limited. We are also upbeat on the industrial segment as it has the highest dependency on acquisitions for yield enhancement due to the limited organic growth from less sensitive rental rates.’

In contrast, retail Reits ’should benefit the least as leases usually include a variable rent component dependent on tenants’ sales’. Also, growing economic uncertainties means those funds are likely to be more volatile, as they depend on consumer spending.

Based on its research, for every one per cent fall in interest rates, Reit yields should fall marginally by 0.27 per cent - indicating the relative insensitivity of yields to interest rates. This also implies a wider premium as interest rates fall, and ’supports our stand that Reits look more attractive in terms of yields as interest rates fall’.

Furthermore, the report says Reits demonstrate market resilience due to their stable income derived from locked-in leases.

‘This provides protection against any possible short-term weakness in rentals during the locked-in period. In addition, structured leases with built-in incremental rental reversions will ensure that Reits will not miss out on any rental upcycle.’

UOB Kay Hian believes longer term prospects for Reits also look good thanks to the demographic characteristics of low birth and death rates, and a rapid growth in the number of elderly people.

‘This global phenomenon underlies the challenges facing mutual and pension funds which are seeking alternative defensive asset classes and high-yield instruments consequently, as they increase their exposure to Reits. We view this as a long-term positive for Reits as such funds’ exposure to Reits increases, typically so in developed economies.’

Another positive is the liquidity that will be drawn to the region as a result of Singapore’s pro-Reit environment. Consequently, the ‘relocation of businesses and people to Singapore could boost demand for shopping malls, offices, serviced apartments, hotels and industrial space, hence driving up rentals’.

Source : Business Times - 27 Mar 2007

CITY Developments (CDL) has bought another three sites in District 11, cementing its presence in the Thomson Road/Balestier Road area.

The developer paid $81.4 million in all for Concorde Residences and the adjoining Balestier Court and Bright Building.

Including an adjacent piece of state land, the plot amounts to 60,214 sq ft of land area and 168,600 sq ft of maximum gross floor area.

CDL’s purchase price for the whole plot works out to about $490 per sq ft (psf) per plot ratio.

Combining all the sites can yield a freehold 36-storey condominium with 150 units at 1,200 sq ft each, CDL said in a statement yesterday.

This purchase comes on top of other recent CDL buys in the area.

The company bought the 41,688 sq ft Albany last month and three other adjoining sites last year - Lock Cho Apartments, Comfort Mansion and a four-storey walk-up apartment block.

CDL now has a total land area of 296,907 sq ft, with a potential floor area of 831,339 sq ft, in the Thomson Road district.

Separately, CDL said it has sold about 65 per cent of its boutique Solitaire development in Balmoral Park.

About 40 of the 59 units were taken up at a soft launch over the weekend.

Prices ranged from $1,800 to $2,200 psf, ’setting a new benchmark price in the location’, the developer said in another statement.

Foreign buyers - from Britain, the United States, Indonesia, Malaysia and the Philippines - made up about 40 per cent of total buyers.

The Solitaire comprises three 12-storey blocks with two- to four-bedroom apartments and penthouses.

Besides the two-bedders, all other units come with their own private lift and private lobby.

In CDL’s launch pipeline over the next three months are a 110-unit Grange Road condominium and the 223-unit Quayside Isle in Sentosa Cove.

Source : Straits Times - 27 Mar 2007

Court rules she has no claim on flat since she wanted nothing to do with it earlier

A Man fought three times to keep a million-dollar apartment as part of his divorce settlement, eventually winning the last round without a lawyer.

The Court of Appeal, which published its decision yesterday, ruled that Mr Samuel Ong, a manager in his 30s, could keep the Malvern Springs flat in Onan Road.

But it upheld earlier court decisions that another property, a flat also in Onan Road, be disposed of according to the couple’s contributions to its purchase.

The couple divorced in September 2003 after a marriage of just over three years.

Ironically, Mr Ong and his former wife, Ms Kristine Chan, had bought the new apartment for just over $800,000 to try and save their marriage, as they felt its feng shui was good.

Ms Chan, 33, an accountant, now lives in Britain.

The couple had booked the Malvern Springs apartment in February 2002 to replace their first home, which had been bought jointly.

Although Mr Ong made the initial downpayment, the understanding was that the mortgage loan would be a joint one.

But as the marriage soured, Ms Chan insisted that Mr Ong agree in writing to make all loan payments for the new flat, or she would not sign the mortgage loan papers.

Both sides stood their ground, but Mr Ong, worried he could be sued by the developer for defaulting on payments, bought the flat in his sole name in May 2003.

Meanwhile, Ms Chan continued with her share of monthly payments for their existing home in Onan Road for which both had contributed initial deposits, he more than she.

After the divorce, in the first legal round, the district court ruled that the new flat should be part of the two properties to be shared and Ms Chan should get 18.56 per cent of the total net worth.

It also held that she should get a token $1 per month in maintenance from Mr Ong.

In the second legal battle, Mr Ong appealed to the High Court. The judge reduced the net amount Ms Chan should get to 15 per cent after taking into account Mr Ong’s ‘unsatisfactory financial state’.

The third round took place last month before the Court of Appeal. On March 20, Justice Judith Prakash delivered the court’s judgment. She noted that Ms Chan had made it clear from the beginning ’she was to have no part’ in buying the second flat.

But when the flat turned out to be a ‘profitable investment’, she took a ‘radically different’ position and claimed a share.

The court said if the flat had become a failed investment, Ms Chan would ‘no doubt’ have wanted nothing to do with it.

At the hearing last month, Mr Ong addressed the court for about 30 minutes before Ms Chan’s lawyer from Harry Elias Partnership responded.

Contacted yesterday, Mr Ong declined comment, explaining that he wants to move on.

NO PAIN, NO GAIN

‘If the wife maintains she has nothing to do with the liabilities associated with Malvern Springs, then she similarly can have no share in its profits.’JUSTICE JUDITH PRAKASH, delivering judgment on behalf of the Court of Appeal

Source : Straits Times - 27 Mar 2007

Singapore’s big three local banks have put off plans to offer reverse mortgages for HDB flats because of the poor demand for such a product.

NTUC Income is the only financial institution here that provides such reverse mortgages and so far only 10 flat-owners have signed up.

It has been one year since the HDB allowed reverse mortgages, thus opening the door for retirees to pledge their flats in return for a monthly income to support their daily needs.

The three big banks - DBS, OCBC, and UOB - had earlier indicated interest in introducing the product, but the poor response means they have now decided to hold back the plans.

However, NTUC Income is undeterred and says it will continue to offer reverse mortgages.

Anthony Chia, General Manager, NTUC Income, said: “There is no real cost to us to have the scheme since it’s already developed. We have other useful schemes that also support small groups of the community that actually were developed in times when there was a need but now there is no need for them.

“But it’s still useful when the need comes again. Our social mission is to make insurance and financial planning available to the bulk of Singaporeans at modest charges. We are not there to maximise profits for our shareholders.”

NTUC Income says it has received more than 1,000 enquiries although only 10 flat owners have signed up for the scheme so far.

Mr Chia said: “Since it’s only one year old there are still many people who are not fully conversant with how this scheme works. We will do educational seminars at least once a year, and if the take-up is good we’ll do it again.

“Although we have a thousand enquiries, we must remember that not all of them are in need of the money straightaway. So it’s good for them to know it’s available, and when the time comes, then they can activate.”

Former NTUC Income CEO Tan Kin Lian, who launched the reverse mortgage scheme, suggested that Members of Parliament and even utility companies could be roped in to help inform elderly people with financial difficulties about the option.

He said: “It is a matter of letting more people know that this is available. Usually when a retired person runs out of money, he approaches his Member of Parliament for help. So perhaps the MP could help to inform the retiree of such an option. Or if a retiree has difficulty paying utility bills or conservancy charges, the respective organisations could help to inform the retiree of the availability of this kind of scheme.”

For now, the three big banks are taking a wait-and-see attitude.

UOB says it may consider offering reverse mortgages at a later date if there is greater demand.

Source : Channel NewsAsia - 27 Mar 2007

The Hong Leong Group has bought One Balmoral for $125 million through a collective sale, setting a new benchmark for Balmoral Road at $1,188 per sq ft per plot ratio for the 66,277 sq ft freehold site. This includes a development charge of $1.1 million.

The site, zoned for residential use with a 1.6 plot ratio, has the potential to be redeveloped into a 12-storey luxurious residential development.

The Hong Leong Group could redevelop the site into a luxury condo of about 95 apartment units with an average size of 1,000 sq ft ?and a breakeven cost of as much as $1,900psf ?or a residential/hotel/serviced apartment development, a concept it pioneered under the St Regis brand.

Balmoral View was earlier sold to Kajima at $733 psf/ppr and 21 Balmoral Road was sold to Chip Eng Seng at $451psf/ppr.

Source : Today - 26 Mar 2007