Brokers' Call

UOL Group

Brokers: Maybank Kim Eng

Call: Buy

Target Price: $7.39

UOL has acquired a freehold site at 45 Amber Road for $156 million - a reasonable price considering it is a good location. UOL will be able to recycle capital released from its recently completed Seventy Saint Patrick's for a fresh development.

The 69,858 sq ft freehold site is currently a horticultural retail centre but has been zoned for residential use under URA's 2014 Master Plan, with a plot ratio of 2.1. This implies it may be redeveloped into a condo, with a potential gross floor area of 146,702 sq ft for a unit land cost of $ 1,063 per sq ft before development charges.

While the site is not particularly cheap against its potential selling price, its good location will ensure healthy demand. It is within walking distance of Parkway Parade, one of the largest suburban shopping malls in Singapore, and two upcoming MRT stations and is scheduled for 2023 completion.

ASCENDAS REIT

Brokers: OCBC Investment Research

Call: Buy

Target Price: $2.68

Ascendas Reit (A-Reit) reported its third-quarter results for financial year 2017.

Gross revenue increased 7.6 per cent year on year to $208.6 million, while distribution per unit grew at a slower pace of 1.2 per cent to 3.993 cents, due to an enlarged unit base following the issuance of new units from the conversion of its exchangeable collateralised securities.

During the quarter, A-Reit achieved positive rental reversions of 3 per cent for its Singapore portfolio.

Overall portfolio occupancy improved to 90.2 per cent. In terms of financial position, A-Reit recorded a healthy reduction in its aggregate leverage from 34.2 per cent to 31.8 per cent, although this may increase once A-Reit completes the acquisition of 12, 14 and 16 Science Park Drive from its sponsor.

KEPPEL REIT

Broker: CIMB

Call: Hold

Target Price: $1.03

K-Reit reported a 12 per cent decline in the fourth quarter of 2016 distribution per unit to 1.48 cents while full-year DPU showed a lesser contraction of 6.3 per cent to 6.37 cents.

The fourth-quarter performance was impacted by a revenue vacuum from the sale of 77 King Street, lower occupancy at Bugis Junction Tower and absence of capital distribution from asset divestment gains.

The trust renewed 621,000 sq ft of space in the fourth quarter and kept portfolio-committed occupancy high at 99.2 per cent with a retention rate of 95 per cent.

However, this was achieved on the back of a 9 per cent decline in reversion rents amid fierce competition from newly completed buildings as the oversupplied market conditions continued to drag on rents and take-up levels.

It achieved an average signing rent of $9.60 per sq ft for its Singapore office leases in financial year 2016.

K-Reit has a remaining 5.6 per cent of leases due to be renewed or reviewed in financial year 2017 and a further 22 per cent the following financial year.

Expiring rents are around the low $9 psf range. Rents are likely to continue to come under pressure in the first half of 2017 but sentiment could improve as we move past the wall of incoming new supply in the latter part of the year.

K-Reit's balance sheet metrics remain stable with no refinancing needs until financial year 2018. About 75 per cent of its borrowings are on a fixed-rate basis, with an all-in interest cost of 2.51 per cent.

A version of this article appeared in the print edition of The Straits Times on January 30, 2017, with the headline 'Brokers' Call'. Print Edition | Subscribe