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25th February 2015

Singapore Economy


Budget 'helps construction sector, but challenges remain'

Source: Business Times / Government & Economy

The parts of Budget 2015 relevant to the construction sector bode well for it in the long term, as they herald a continued focus on infrastructure development and a raising of skills sets, say industry observers and players. They add, however, that the going will still be rough, particularly for companies still hoping to regain a footing from the impact of the national drive to restructure the economy.

-By Mindy Tan

Sibor rises to 0.734% - almost double the year-ago rate

Economists expect it to reach near one per cent by the year-end on US dollar strength

Source: Business Times / Banking & Finance

THE key three-month Sibor or Singapore interbank offered rate continues to rise; at 0.734 per cent on Tuesday, it's almost double the rate one year ago due to continued US dollar strength. The three-month Sibor was 0.389 per cent on Feb 21 last year.

From last Wednesday, the three-month Sibor on which most mortgages are priced off is up 7 per cent and the forecast is for more US dollar strength and higher interest rates.

"It's a function of US dollar strength," said Alvin Liew, United Overseas Bank senior economist, adding that it is a broad trend shared by most currencies in the region.

UOB expects the US dollar to reach S$1.40 by the third quarter, up from S$1.36 now, and the three-month Sibor to reach one per cent by the end of this year.

The US dollar was at S$1.32 at the beginning of 2015.

Said Selena Ling, OCBC Bank head, treasury research and strategy: "Our six and 12-month forecasts for three-month Sibor are 0.8 per cent and 0.95 per cent respectively.

"There are upside risks mainly due to the SGD weakness, coupled with the firmer direction from US short-term interest rates ahead of a potential lift-off by the US Federal Reserve around middle of the year."

Another benchmark interest rate - the three-month SOR or swap offer rate - which is typically used for commercial loans, also rose to a 52-week high of 0.944 per cent, up more than 5 per cent from last Wednesday.

Mr Liew said part of Sibor's rise is catching up with the more volatile SOR which is a traded interest rate.

While Sibor's upward move is likely to be sustained, there could be a short-term reversal in the direction of SOR, he said.

It depends on how certain external events such as Greece unfold, or whether the expected hike in US interest rates is delayed, he said.

Another factor pushing local interest rates higher is the tight liquidity situation here, said Mr Liew.

Deposit growth has lagged loans demand and the loan to deposit ratio is above 100.

In a note last month, Citi economist Wei Zheng Kit said the weak Singapore dollar and tight liquidity were adding to the pressure on SOR and Sibor.

"With banks' deposits having lagged credit growth for several quarters - partly reflecting a shift away from SGD deposits onshore (especially to CNH deposits) and possibly capital outflows - the pass through to Sibor has been quicker," he said.

Some analysts think the slide of the Singapore dollar may not have much more to go, in terms of weakening further against the US dollar.

"The worst is probably behind the SGD," said Siddharth Mathur, Citi strategist.

-By Siow Li Sen

Singapore Real Estate


Tuas South site up for public tender

The 0.7-hectare site at Tuas South Street 6 is up for sale, and the tender closes on Apr 21 at 11am, says JTC.

Source: Channel News Asia / Business

SINGAPORE: A new site at Tuas South Street 6 is up for sale, announced JTC Corporation on Tuesday (Feb 24).

The 0.7-hectare site was launched for sale by public tender under the first half 2015 Industrial Government Land Sales (IGLS) Programme. The Confirmed List site is zoned for Business-2 development and has a 20-year 3-month tenure, with a maximum permissible gross plot ratio of 1.0, JTC said in its press release.

Interested parties can apply for the site before the tender closes on Apr 21 at 11am, JTC added.

- CNA/kk

Companies' Brief


As expected, impact of Budget 2015 on S-Reits is minimal

Source: Business Times / Government & Economy

Singapore real estate investment trusts (Reits) welcomed the extension of tax incentives on Tuesday, with the FTSE ST Reit index rising a modest 0.6 per cent to 804.29. Analysts had expected as much - that the impact, both of the incentive extensions and the lapse of the stamp duty remissions, would be minimal on Reits.

-By Lee Meixian

Dropping Reits' stamp duty concessions helps level playing field

Source: Straits Times / Opinion

THERE was a predictable moan from real estate investment trust (Reit) managers and tax experts over the Government's decision not to extend the stamp duty concessions for Reits on the purchase of local properties after they expire on March 31.

It would add another 3 per cent to the costs of Reits acquiring properties here and make it more challenging for them to grow their portfolios, they complain.

Yet, as Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam noted in his Budget 2015 speech, the stamp duty concessions "were intended to enable the industry to acquire a critical mass of local assets as a base from which Reits can expand abroad, (and) this has been achieved".

One might also add that the move would level the field for other players in competing with Reits to acquire properties in Singapore.

In 2005, when the stamp duty waiver - together with a slew of other tax incentives - were given, there were only five Reits listed here with a total market value of $9 billion.

That has since grown to 28 Reits and six stapled securities - an asset class which involves a Reit "stapled" to other forms of investments - with a total market capitalisation of $67 billion.

But despite bulking up in a big way in the past 10 years, Reits have continued to chase property deals in the small congested Singapore market rather than try to use their financial clout to land prized catches overseas.

According to Ms Christine Li, director of research at Cushman and Wakefield, six of the top 10 investment deals last year involved Reits buying properties locally, worth a total of $4 billion in transaction value.

Several Reits are also 100 per cent Singapore-focused.

These include well-known names in the market such as CapitaMall Trust.

A few, such as Far East Hospitality Trust, are said to have a pipeline of local assets lined up for injection by their respective sponsors.

That said, the Government is going to extend income tax and goods and services (GST) tax concessions which Reits currently enjoy.

The implied message, one concludes, is that, going forward, Reits should try to buy from overseas to grow their portfolios.

With the extensions, Reits will continue to enjoy tax exemption on qualifying foreign-sourced income, a reduced withholding tax of 10 per cent on its payouts to foreign institutional investors and GST remissions on business expenses for Reits with overseas assets.

Ernst and Young tax partner Lim Gek Khim said: "For Reits investing in overseas properties, this would facilitate more overseas acquisitions and encourage the listing of cross-border Reits on the Singapore Exchange."

In its Think Singapore report, Citi Research noted that allowing the stamp duty concession to expire was a less damaging removal of a tax incentive given to the Reit sector.

This is because it is a transaction-based tax that would not add to the ongoing tax burden to the Reit or the Reit investor.

The impact of removing the stamp duty waiver is slight enough "not to create too un-level a playing field that would lead Reits to favour overseas acquisitions where stamp duties may still be payable in any case", it added.

-By Goh Eng Yeow, Senior Correspondent

Reits investors cheered by Budget measures

Source: Straits Times / Money

THE Budget move to end a waiver on stamp duty may cause real estate investment trusts (Reits) to be more cautious in making local acquisitions but the continuance of other tax concessions lifted the sector yesterday.

The FTSE ST Reit index rose 5.1 points, or 0.6 per cent, to close at 804.7 points.

Reit investors were pleased that the Budget's bad news was outweighed by the good.

While the stamp duty waiver will end on March 31, other measures like tax exemptions on qualifying foreign sourced income and Reit goods and services tax concessions were extended for another five years, until March 31, 2020. "The Reits and even those with only local properties in their portfolios rallied and are doing well because the impact from the stamp duty is likely to be marginal," said DMG & Partners property analyst Ong Kian Lin.

Stamp duties will be imposed on Reit purchases of properties here from April 1. That will lead to an increase in costs of about 3 per cent.

Analysts say the impact will not be significant, noting that there could be a slight slowdown in the acquisition of new properties as trusts work out their sums with returns moderating.

Mr Ong noted that out of the 34 Reits listed here, 12, including CapitaMall Trust, Frasers Centrepoint Trust and SPH Reit, have only Singapore assets. The stamp duty waiver was aimed at helping Reits build up their assets during their formative years as a springboard to expanding overseas.

DBS Group Research analyst Derek Tan said Singapore-listed Reits have bulked up over the years and now have a combined asset size of more than $100 billion, including foreign properties. The original aim to enable Reits here to grow a critical mass of assets is thus not as crucial as before.

"Acquisition strategies would not change because of the stamp duty and a lot of local Reits are already overseas, where they would have to pay duties, so it's not a big surprise," said Mr Tan.

OCBC Investment Research analysts Eli Lee and Andy Wong also highlighted in a note that Reits could benefit indirectly from the Budget measure that defers levy increases for foreign workers.

"We view this as a positive for the retail, hospitality and industrial Reits sub-sectors as it will help to mitigate some cost pressures for their tenants."

Most analysts have kept their neutral call on the Reits sector as it faces challenges ahead. The most immediate concern is the expected hike in interest rates by the United States Federal Reserve.

Voyage Research investment analyst Phuah Keng Keat said: "Once interest rates go up, it would put pressure on the Reits because of the higher cost of financing and their yields would also be impacted."

-By Mok Fei Fei

Chip Eng Seng's Q4 earnings more than quadruple to S$167.6m

Source: Business Times / Companies & Markets

Strong contributions from its property developments have boosted the earnings of Singapore-based property and construction group Chip Eng Seng Corporation. The group posted a 383.9 per cent increase in net profit to S$167.6 million for the fourth quarter ended Dec 31, 2014. Its revenue for the same period was up 112.9 per cent at S$368.6 million.

-By Prisca Ang

Wheelock's Q4 loss widens, but profit up 7.7% for FY14

Source: Business Times / Companies & Markets

Luxury property developer Wheelock Properties (Singapore) saw its net loss for the quarter ended December 2014 widen from S$91.3 million to S$103.1 million. Revenue for the quarter fell 7.2 per cent, from S$28.98 million to S$26.90 million. For the full year ended December, net profit rose 7.7 per cent to S$43.1 million. Revenue dropped 15.4 per cent to S$99.0 million.

-By Mindy Tan


Wheelock writes down value of Scotts Square by 17%

Wheelock writes down value of Scotts Square shopping mall from S$312 million to S$260 million, reflecting poor business conditions.

Source: Channel News Asia / Singapore


SINGAPORE: Wheelock Properties (Singapore) has written down the book value of Scotts Square shopping mall by 17 percent to reflect poor business conditions.

The estimated value of the mall along Scotts Road is now S$260 million, down from the previous estimate of S$312 million, Wheelock said on Tuesday in its earnings statement for the fourth quarter ended Dec 31.

Wheelock also took a write-down of S$75 million for a project in China to reflect uncertain market conditions and the slower pace of developments in the neighbourhood.

As a result, the firm posted a loss of S$103.1 million for quarter, widening from S$91.3 million in the same period a year ago.

"Scotts Square is operating under very challenging circumstances as a boutique mall. A substantial tenant and trade mix revamp is underway for the mall and reduction of rental revenue is expected for the initial years," it said.

Scotts Square retail had an overall occupancy rate of 88 percent and commanded an average monthly rental S$16 per square the end of December.

Looking ahead, Wheelock said local market conditions in 2015 are expected to remain subdued. But the firm has a strong cash position and is those ready to capitalise on opportunities locally and abroad.

- CNA/rg

Will CDL be able to pull off new growth strategy?

Source: Business Times / Companies & Markets

City Developments Ltd (CDL) executive chairman Kwek Leng Beng is not one who is shy to express his views. Back in 2006/2007, he had stated that the group wanted to be a pure real estate company. "We don't want to be a hybrid company, a half-breed - half real estate, half financial," he had said then. He was alluding to the likes of rivals CapitaLand and Keppel Land that were making bold moves on the asset monetisation and property fund management fronts.

-By Kalpana Rashiwala

Higher costs pull down profit of Hotel Properties

Source: Straits Times / Money

HIGHER finance costs and lower sales from its property development unit led to a drop in full-year profit at Hotel Properties.

Earnings fell 30 per cent to $124.4 million for the year ended Dec 31, down from $177.6 million in the previous year.

Revenue declined in tandem, slipping 11 per cent to $614.6 million.

Hotel Properties recorded higher contributions from resorts in the Maldives and Bali, which lifted turnover from the hotels segment from $464.2 million to $498 million.

But its results were dragged down by the properties arm, where revenue fell from $228.2 million to $117 million.

Its share of results from associates and jointly controlled entities decreased from $63.5 million to $33 million due to lower profits from The Interlace and d'Leedon condominiums.

The completion of its Tomlinson Heights project also led to an increase in finance costs, which rose from $25.1 million to $32 million.

Last year's results were also affected by the absence of exceptional gains.

Hotel Properties made a one-time gain of $13 million on the disposal of investment properties at Kensington Square in London in 2013, which led to a higher base of comparison.

The company is staying cautious about prospects this year.

"Our hotels and resorts are expected to continue to contribute steadily to the group's operating results, although the global economic recovery remains mixed.

"Singapore private residential properties sales for 2014 was halved to about 7,400 units, with prices declining by 4 per cent as compared with the previous year."

Earnings per share declined from 33.19 cents to 22.34 cents but the net asset value per share rose from $3.13 to $3.28.

A first and final cash dividend of four cents a share and a special dividend of six cents a share have been declared, 25 per cent higher than the total dividend of eight cents announced the year before.

-By Mok Fei Fei

Global Economy & Global Real Estate


Aozora to raise 50b yen from Japan banks for real estate funds

The Tokyo bank, which targets 2-3% annual returns, says response from lenders is encouraging

Source: Business Times / Real Estate

India's retail dilemma: too few nice malls

Many centres struggle to draw shoppers or retailers because of poor design or inefficient management

Source: Business Times / Real Estate

Homes sell so fast in Stockholm that buyers bid before public showing

Source: Business Times / Real Estate

Land area for new China housing drops 25% in 2014

Source: Business Times / Real Estate

Blackstone’s Goodman Joins Board as Credit Unit GSO Grows

Source: Bloomberg

(Bloomberg) -- Bennett Goodman, the head of Blackstone Group LP’s credit unit, joined the firm’s board of directors after his group expanded assets more than sevenfold in seven years.

Goodman, 57, becomes the New York-based company’s fifth internal director on the 10-person board, following the appointment of real estate head Jon Gray in 2012. He co-founded GSO Capital Partners, which Blackstone acquired in 2008.

“Bennett heads one of our largest and best-performing businesses,” Steve Schwarzman, Blackstone’s chief executive officer, said in a statement Tuesday. “His deep knowledge of markets and critical thinking about companies, institutions and economies has been invaluable.”

Goodman runs GSO alongside co-founders Tripp Smith and Doug Ostrover. The group, which managed $73 billion of Blackstone’s $290 billion in assets as of Dec. 31, generated 9.9 percent of the firm’s revenue in 2014.

Blackstone’s board of directors includes Schwarzman, President Tony James, Vice Chairman Tom Hill, Gray, Goodman, Richard Jenrette, Shelly Lazarus, Jay Light, Brian Mulroney and William Parrett.

-By Devin Banerjee

Abramovich’s Moscow Office Block Two-Thirds Empty in Downturn

Source: Bloomberg

(Bloomberg) -- Billionaire Roman Abramovich’s White Gardens office complex in Moscow stands about two-thirds empty as a supply glut and a sinking Russian economy make it difficult for landlords to find new tenants.

The Russian owner of London’s Chelsea Football Club bought the business center near the central Tverskaya Street in November 2013. Since then, he’s secured new leases accounting for less than 10 percent of the property’s 63,000 square meters (678,000 square feet) of space, according to his spokesman, John Mann. About a third of the property, opened in 2013, is occupied, he said.

“We are taking a long-term view by making sure we have a good client base and by not diminishing its value,” Mann said by phone. “We have a class-A, top-notch asset.”

Office demand in Moscow slumped at the end of last year as a drop in oil prices, a tumbling ruble and economic sanctions levelled against Russia discouraged companies from expanding in the city. The average vacancy rate for the highest-quality office space in the city climbed to 29 percent at the end of 2014 from 18 percent a year earlier as new properties added to supply, Jones Lang LaSalle Inc. said in a report.

Abramovich acquired White Gardens from VTB Capital, TPG Capital LLP and the sovereign-wealth fund China Investment Corporation. The complex, which consists of two buildings connected by an open-air arcade with terraces and rooftop gardens, has won design and environmental awards.

Bleak Outlook

Almost half of the retail space in the atrium remains closed. The Cheapside Josper Bistro, named after a street in the City of London financial district, was the busiest place at lunchtime on a Friday this month, with about half of the tables occupied by office workers enjoying burgers and beers. The adjoining Box Bar and the newly-opened Trattoria Siciliana were almost empty.

“It’s bit of a ghost town here,” Kamil Anderzhanov, a risk analyst at Deloitte, said over a coffee in Cheapside. “I don’t think workers in the surrounding area realize this complex is even open.”

Owners of properties coming onto the market recently face greater challenges than those who secured new tenants before last year. Moscow City, a collection of newly built towers located 3 kilometers (1.9 miles) west of the Kremlin, has a vacancy rate of about 45 percent, according to Tom Mundy, head of research for Russia and the Commonwealth of Independent States at Jones Lang.

Full House

The White Square development directly to the south of Abramovich’s complex opened in 2009 as the first phase of the White District office area. The properties are almost full after securing long-term tenants including JPMorgan Chase & Co, PricewaterhouseCoopers, Deloitte and McKinsey & Co. It was sold to Russian real estate company O1 Properties for $1 billion in 2013.

Restaurants on the ground floor, including steakhouse Torro Grill and the Italian Osteria della Piazza Bianca, were buzzing with large groups of bankers and consultants Friday.

Abramovich has achieved 100 percent occupancy at his other premium office blocks at Krylatsky Hills and Baltschug Plaza in the city center, according to Mann. Both were completed in 2004. The 48-year-old is the world’s 90th richest person with a $12.7 billion fortune, according to the Bloomberg Billionaires Index.

Vacancies Climb

The vacancy rate has been climbing in Moscow’s office market as projects that were started while Russia’s economy was growing deliver new stock. Space in the capital grew by 1.4 million square meters last year and it’s anticipated to climb to 18 million square meters by the end of 2015 as skyscrapers open in the Moscow City district, according to Jones Lang. A record amount of top-tier space was completed last year, the U.S. broker said.

“A lot of stock was coming on to market and vacancy rates were ticking up as the economy slowed even before Putin unexpectedly annexed Crimea,” Jones Lang’s Mundy said by phone. “Rents fell 20 percent last year and will drop by another 15 percent this year, but we see things leveling off by the middle of the year.”

Russia’s economy is set for a 5.6 percent contraction this year and it probably won’t repeat the rapid rebound that the country experienced in 2009, “particularly given the rising risk of further sanctions,” Morgan Stanley economist Alina Slyusarchuk said in a note in January.

While Abramovich’s White Gardens has secured tenants including Microsoft Corp., private-equity investor Baring Vostok and law firms Dentons and Baker & McKenzie LLP, it’s not enough to dispel the sense of emptiness.

“It’s one of the most luxurious business class offices but it’s empty, with only three floors taken in our building,” said Irina Buyanivna, a legal assistant at Dentons, whose firm moved to White Gardens a year ago. “The main problem for us the lack of a canteen, but the are lots of places around here to eat.”

-By Jason Corcoran

Invesco’s Mortgage REIT Turns Winner in Fannie-Freddie Debt Bet

Source: Bloomberg

(Bloomberg) -- A rally in a growing type of Fannie Mae and Freddie Mac securities is vindicating Invesco Mortgage Capital Inc.’s decision to be a big player in the market.

The real estate investment trust owned $615 million of the $12.6 billion of the Fannie Mae and Freddie Mac risk-sharing bonds issued as of Dec. 31, up from $431 million six months earlier. While the REIT was sitting on $15 million of paper losses at the end of last year after it bought more as prices slumped, a reversal this year has left the firm with gains on its purchases as well as “attractive” income from coupon payments, according to Chief Executive Officer Richard King.

“We were one of the early buyers, and willing to accept some liquidity and spread volatility risk, because this sector is one of the best opportunities in the whole mortgage market,” King said today on a conference call to discuss fourth-quarter earnings.

The market for the debt has been volatile, with prices and spreads, or yields relative to benchmark rates, swinging as sales expand. A portion of an April offering jumped to more than 108 cents on the dollar the next month, before tumbling to almost 90 cents in November. The notes traded at more than 99 cents Tuesday, according to Trace, the Financial Industry Regulatory Authority’s bond-price reporting system.

Principal Risk

The government-backed companies began selling the securities in 2013 to reduce taxpayer risks. The Fannie Mae and Freddie Mac offerings are unsecured debt whose principal can be erased when enough of the mortgages packaged into separate bonds guaranteed by the companies default. Issuance this year totals about $2.4 billion, according to data compiled by Bloomberg.

Invesco Mortgage, a $21 billion-asset REIT managed by Atlanta-based Invesco Ltd., is “probably one of the few largest holders” of the securities, which are tied to loans whose quality and performance has been “excellent,” King said. Increasing issuance and more buyers will be positives for the market, Chief Investment Officer John Anzalone said.

While investors including Fidelity Investments, TCW Group Inc. and DoubleLine Capital LP said last month they’ve been declining to buy the bonds, other firms have been saying they like the securities, including REITs American Capital Mortgage Investment Corp. and Two Harbors Investment Corp. this month.

-By Jody Shenn

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