Suntec REIT

[Greenrookie]

Hi shanrui,

Is valuation of property done thro cap rate?? Or the valuation of property is determined first and the calculation of cap rate made possible?

[shanrui_91]

Hi shanrui,

Is valuation of property done thro cap rate?? Or the valuation of property is determined first and the calculation of cap rate made possible?

Valuation of property is done through Cap Rate, DCF, Precedent Transaction or Replacement Cost. I supposed that it is just a difference in style rather than substance for the first 3 methods. Essentially, be it the cap rate or the discount rate used in DCF, they will be based on the current market value of the property as well as the mood of the market. So to get a similar cap rate, I can simply adjust my discount rate as well as the growth rate for my dcf.

Cap rate is the layman method to compare the valuation of properties used in reits. DCF is merely for people to appear sophisticated though I don't see how it will differ much from cap rate method.

[felixleong]

seems like suntec is marking their asset value quite aggressively

[KopiKat]

From reitdata.com, FCT is trading at similar yield of 5.6% to suntec but FCT is trading at 20% above NAV while suntec is trading at 20% discount to NAV.

Assuming they are giving out 100% payout, this implies that the difference lies in the ROE. PE*ROE =PB

This is not equivalent to FCT operating more efficiently than Suntec but as a result of the higher valuation Suntec uses for its property. FCT uses an average cap rate of 5.5 to 5.75% for its properties whereas Suntec uses an average cap rate of 3.2% to 4.5% (MBFC and Park Mall uses 4.5%, Suntec City uses 3.8% and One Raffles Quay uses 3.2%).

Cap rate is Property Value/NPI, thus the lower your cap rate, the more aggressive you are in valuation of property and the lower your ROE.
The difference here is not FCT being conservative, but due to the fact that they are holding different kind of properties. FCT is a pure retail player where cap rate of 5-6% is common while Suntec is 50% office where cap rate is commonly around 4-5%. It is much easier to manage an office property as you don't have to manage the tenant mix, attract the shopper traffic and e.t.c

But if we were to compare with other REITs which are also heavy on Office assets, we see their NAV discount / premium,

KepREIT : +3.5%
FCOT : -8.3%
CCT : -8.95%

So, could it be a case of Suntec being too aggressive in their valuations? Or market is giving it a higher discount due to the massive size of their few assets, which may be harder to sell??

[Nick]

I believe currently Suntec Mall is undergoing a massive AEI with significant reduction in occupancy hence the drop in NPI in 1Q 2013. It is likely that post AEI in 2015, the DPU yield will probably exceed 6%.

(Not Vested)

[shanrui_91]

But if we were to compare with other REITs which are also heavy on Office assets, we see their NAV discount / premium,

KepREIT : +3.5%
FCOT : -8.3%
CCT : -8.95%

So, could it be a case of Suntec being too aggressive in their valuations? Or market is giving it a higher discount due to the massive size of their few assets, which may be harder to sell??

Given Keppel REIT's rich history, I don't think the market will give it any premium for the new "Keppel" name now.

I have compiled some data below, and have excluded most of those that have yet to contribute full year NPI data.

FCOT has a business park in Alexandra Techno-Park and 2 Australia properties which have higher cap rate compared to the 3% used for China Square Central and 55 Market Street.

CCT has a 60% interest in Raffles City which is part retail part office, as well as Golden Shoe Car Park. Twenty Anson and Six Battery Road Cap Rate are around 3%, while Capital Tower and HSBC Building are around 4%.

Keppel REIT has 2 Australia properties which is yielding higher too. Keppel REIT has rental support for OFC, MBFC and One Raffles Quay which might make the cap rate less accurate. I believe the reason why Keppel REIT trades at a premium is because of the higher gearing ratio and leverage employed.

For Suntec Reit, it is clear that Suntec City Mall is pulling down the cap rate. I supposed that when the AEI is completed it should yield another 40-50 million NPI. Post-AEI, overall cap rate for Suntec Reit should be around 4.2%.

It seem like Retail REITs are so much simpler than Office REITs which have rental support, more varied cap rate and other kind of properties like retail, carpark and industrial. I suppose it is harder for Office REITs trading at 5-6% to do yield accretive acquisition where market cap rate is around 3-4%.

[KopiKat]

But if we were to compare with other REITs which are also heavy on Office assets, we see their NAV discount / premium,

KepREIT : +3.5%
FCOT : -8.3%
CCT : -8.95%

So, could it be a case of Suntec being too aggressive in their valuations? Or market is giving it a higher discount due to the massive size of their few assets, which may be harder to sell??

Given Keppel REIT's rich history, I don't think the market will give it any premium for the new "Keppel" name now.

I have compiled some data below, and have excluded most of those that have yet to contribute full year NPI data.

FCOT has a business park in Alexandra Techno-Park and 2 Australia properties which have higher cap rate compared to the 3% used for China Square Central and 55 Market Street.

CCT has a 60% interest in Raffles City which is part retail part office, as well as Golden Shoe Car Park. Twenty Anson and Six Battery Road Cap Rate are around 3%, while Capital Tower and HSBC Building are around 4%.

Keppel REIT has 2 Australia properties which is yielding higher too. Keppel REIT has rental support for OFC, MBFC and One Raffles Quay which might make the cap rate less accurate. I believe the reason why Keppel REIT trades at a premium is because of the higher gearing ratio and leverage employed.

For Suntec Reit, it is clear that Suntec City Mall is pulling down the cap rate. I supposed that when the AEI is completed it should yield another 40-50 million NPI. Post-AEI, overall cap rate for Suntec Reit should be around 4.2%.

It seem like Retail REITs are so much simpler than Office REITs which have rental support, more varied cap rate and other kind of properties like retail, carpark and industrial. I suppose it is harder for Office REITs trading at 5-6% to do yield accretive acquisition where market cap rate is around 3-4%.

Thanks! Looks like Suntec deserves a closer look, especially if one is willing to hold till the massively disruptive AEIs at Suntec City is finally completed...

---

For those who're focussed on the NAV Premium / Discounts as a key screen, using last Friday's close,

[wrap]
[table=REIT]
SaizenREIT
SuntecReit
Fortune Reit HK$
LippoMalls
Starhill Gbl
CapitaComm
FrasersComm
AscottREIT
FE-Htrust
A-HTrust
K-REIT
MapletreeGCC
CapitaRChina
CDL Htrust
AIMSAMPI Reit
Sabana
Cambridge
MCT
Ascendasreit
CapitaMall
MIT
MapletreeLog
FrasersCT
CLT
First REIT
PLife REIT[/table]
[table=Price]
$0.189
$1.600
$6.950
$0.490
$0.855
$1.475
$1.375
$1.320
$0.965
$0.845
$1.335
$0.950
$1.395
$1.720
$1.625
$1.180
$0.730
$1.185
$2.270
$1.970
$1.325
$1.105
$1.895
$1.230
$1.230
$2.380 [/table]
[table=NAV]
$0.250
$2.035
$8.820
$0.565
$0.960
$1.620
$1.500
$1.320
$0.958
$0.820
$1.290
$0.910
$1.310
$1.590
$1.476
$1.060
$0.655
$1.060
$1.913
$1.640
$1.100
$0.900
$1.540
$0.960
$0.836
$1.550 [/table]
[table=Premium / Discount]
-24.40%
-21.38%
-21.20%
-13.34%
-10.94%
-8.95%
-8.33%
0.00%
0.76%
3.05%
3.49%
4.40%
6.49%
8.18%
10.09%
11.32%
11.45%
11.79%
18.66%
20.12%
20.45%
22.78%
23.05%
28.13%
47.13%
53.55%[/table]
[/wrap]

[BlueKelah]

US T-Note up 8% to 2.715

after the good payroll news,

looks like gonna be another painful week for REITs next week as interest rates rise.

[Nick]

http://www.remisiers.org/cms_images/rese..._Reits.pdf - there is a report covering all the REITs by CIMB discussing how a 50 bp increment in interest rates would affect the DPU. According to the analyst computations, a 50 bp increase in interest rates will cause Suntec REIT DPU to decline by 3%.

(Not Vested in Suntec)

[KopiKat]

http://www.remisiers.org/cms_images/rese..._Reits.pdf - there is a report covering all the REITs by CIMB discussing how a 50 bp increment in interest rates would affect the DPU. According to the analyst computations, a 50 bp increase in interest rates will cause Suntec REIT DPU to decline by 3%.

(Not Vested in Suntec)

For easy reference,

[Image: 10r8tw2.jpg]