CapitaLand Integrated Commercial Trust (CICT)

[CY09]

Not optimistic in their ability to obtain rents in the $10 region in 2016.

I have written on my blog yesterday about the impending office oversupply and how it will affect NAV of office REITS and profits

http://investmoolah.blogspot.sg/2015/09/...t-are.html

Similarly, channelnewsasia posted analysts views today echoing similar sentiments today on office rental rates. If rentals are to fall by 20%, office rental rates will be $8.50 and is likely to persist until 2019. This means right now the income support and locked in rates are what is propping up income for CCT and Keppel. My personal estimate is that value of office buildings are set to fall by 20-25%. This means CCT gearing is likely to stay in the region of 35-40% and the purchase of capitagreen will be mainly through equity raising because MAS stipulates a limit of 45% gearing.

I do not think purchasing capland 60% stake of capitagreen at 1.01 billion will be a good proposition for CCT unitholders. It will benefit the parent company only

http://www.channelnewsasia.com/news/busi...27112.html

[gzbkel]

Not optimistic in their ability to obtain rents in the $10 region in 2016.

I have written on my blog yesterday about the impending office oversupply and how it will affect NAV of office REITS and profits

http://investmoolah.blogspot.sg/2015/09/...t-are.html

Similarly, channelnewsasia posted analysts views today echoing similar sentiments today on office rental rates. If rentals are to fall by 20%, office rental rates will be $8.50 and is likely to persist until 2019. This means right now the income support and locked in rates are what is propping up income for CCT and Keppel. My personal estimate is that value of office buildings are set to fall by 20-25%. This means CCT gearing is likely to stay in the region of 35-40% and the purchase of capitagreen will be mainly through equity raising because MAS stipulates a limit of 45% gearing.

I do not think purchasing capland 60% stake of capitagreen at 1.01 billion will be a good proposition for CCT unitholders. It will benefit the parent company only

http://www.channelnewsasia.com/news/busi...27112.html

Hello CY09, thanks for sharing your thoughts.
I am not sure about Keppel, but Capitacomm seems fine to me.

According to the 2Q results, the total yield stabilization received for 1H is 0.4 million, which is negligible.
The current average portfolio rental is $8.88 psf, which is not that far from your estimate of $8.50.
Increasing income from CapitaGreen should help to offset the coming downtrend in rental.

[butcher]

One of the least geared REIT, should have a safe buffer against rising interest rate impact on its gearing limit

[csl123]

One of the least geared REIT, should have a safe buffer against rising interest rate impact on its gearing limit

In additional to gearing limit, its ability to service the interest payment should also be considered. However, since more than 83% of its debt are fixed interest rates, rising i/r is going to be of little concern to CCT.

[csl123]

Not optimistic in their ability to obtain rents in the $10 region in 2016.

I have written on my blog yesterday about the impending office oversupply and how it will affect NAV of office REITS and profits

http://investmoolah.blogspot.sg/2015/09/...t-are.html

Similarly, channelnewsasia posted analysts views today echoing similar sentiments today on office rental rates. If rentals are to fall by 20%, office rental rates will be $8.50 and is likely to persist until 2019. This means right now the income support and locked in rates are what is propping up income for CCT and Keppel. My personal estimate is that value of office buildings are set to fall by 20-25%. This means CCT gearing is likely to stay in the region of 35-40% and the purchase of capitagreen will be mainly through equity raising because MAS stipulates a limit of 45% gearing.

I do not think purchasing capland 60% stake of capitagreen at 1.01 billion will be a good proposition for CCT unitholders. It will benefit the parent company only

http://www.channelnewsasia.com/news/busi...27112.html

The average Grade A market rent by CBRE is S$11.30. A 20% drop in rental, its is about S$9, not S$8.5.

The current expiry lease for CCT is S$8.59, S$9.82 and S$10.24 in 2015, 2016 and 2017 respectively.
In rental income terms, only 30% are due for renewal in these years. So the whole portfolio will not have its rental income decrease by 20%.
For valuation of the properties, it is accounted for over its useful life. The drop in rental is temporary, which will not result the valuation of the buildings to fall by 20-25%. Unless we assume the rental income decrease is permanent.
I cannot agree to the points made above.

[zerobeta]

The biggest worry on the office sector that probably hasn't been priced in by the market is that the huge incoming supply of office space over the next few years still hasn't taken into account the existing and incoming supply of business park... if you look at reports from banks or property analysts like Savills, Colliers, etc., you'll know it's true...

Business parks can only be occupied by certain sectors such as engineering, IT, and research but many corporations often have one of these sectors within their organization... the back office of banks for example has been migrating to business park and I suspect more are following...

There can also be a significant cost saving by relocating to business park as rents there are around 4-5 SGD/sqft vs 8-12 in the CBD area... and as the government is pushing and moving towards knowledge-based economy, there'll be a lot more demands for business parks and less for office space....

Moreover with increasing connectivity (more MRT lines, more highways, etc.), distance will be less of an issue sooner or later...

Google has relocated their office from CBD to business park and I believe a lot of IT companies that just entered Singapore like LinkedIn may soon follow once their lease contract has expired....

Last but not least, worth mentioning is that around half of assets managed by private banks in Singapore (most of which are located in CBD) come from Indonesia.... so as Indonesia is fighting hard to repatriate undeclared money from overseas (by offering tax amnesty) and as Singapore has already committed to automatically start sharing information with foreign tax authorities from 2018, private banking business in Singapore is facing a gloomy outlook, which means less need for office expansion (or even office close-down) and less rent-paying ability....

[ValueMushroom]

All these are good news, the groomier the outlook the better it is for investors who wish to accumulate. : ) waiting patiently.

[Dividend Knight]

To add on to what zerobeta has shared. I believe that the Singapore government is moving towards 'decentralisation', with regional commerce hubs in Jurong and Woodlands coming online in the future. So yes, I agree. The trend of businesses moving some of their operations out of expensive CBD will continue.

[csl123]

The biggest worry on the office sector that probably hasn't been priced in by the market is that the huge incoming supply of office space over the next few years still hasn't taken into account the existing and incoming supply of business park... if you look at reports from banks or property analysts like Savills, Colliers, etc., you'll know it's true...

Business parks can only be occupied by certain sectors such as engineering, IT, and research but many corporations often have one of these sectors within their organization... the back office of banks for example has been migrating to business park and I suspect more are following...

There can also be a significant cost saving by relocating to business park as rents there are around 4-5 SGD/sqft vs 8-12 in the CBD area... and as the government is pushing and moving towards knowledge-based economy, there'll be a lot more demands for business parks and less for office space....

Moreover with increasing connectivity (more MRT lines, more highways, etc.), distance will be less of an issue sooner or later...

Google has relocated their office from CBD to business park and I believe a lot of IT companies that just entered Singapore like LinkedIn may soon follow once their lease contract has expired....

Last but not least, worth mentioning is that around half of assets managed by private banks in Singapore (most of which are located in CBD) come from Indonesia.... so as Indonesia is fighting hard to repatriate undeclared money from overseas (by offering tax amnesty) and as Singapore has already committed to automatically start sharing information with foreign tax authorities from 2018, private banking business in Singapore is facing a gloomy outlook, which means less need for office expansion (or even office close-down) and less rent-paying ability....

Good considerations being raised. We will have to observe if this trend persist. But the lure of institutional stability has resulted many financial services players to setup base in singapore. So demand is still likely to be strong. Also if the financial services sector is doing well, cost pressure of relocation to nearby business parks is not strong.

[butcher]

Looking at the attractiveness of going into CCT