Real News‎ > ‎2015‎ > ‎January 2015‎ > ‎

27th January 2015

Singapore Real Estate

Developer sentiment worsens further

NUS-Redas Real Estate Sentiment Index shows overall market sentiment in S'pore fell to 3.4 in Q4 from 3.7 in Q3

Source: Business Times / Real Estate

Expectations of worsening property market conditions grew stronger in the fourth quarter of 2014 among Singapore real estate developers and the residential outlook remained gloomy, according to a survey by the Real Estate Developers' Association of Singapore (Redas).

-By Kenneth Lim

KepLand soars on privatisation bid; KepCorp edges up amid mixed views

Source: Business Times / Stocks

KEPPEL Corp shares opened to a relatively muted market reaction on Monday, while Keppel Land's shares surged, after the conglomerate unveiled a bid to take its real estate subsidiary private.

Keppel Corp edged up six cents, or 0.7 per cent, to end the day at S$8.16 even as analysts applied bigger conglomerate discounts to their target prices.

Keppel Land shares shot up 90 cents, or 25 per cent, to S$4.55 to hit a four-year high, as more investment analysts recommended minority shareholders to accept the offer for its generous price. Both the stocks were trading cum dividend.

Some analysts also raised their target prices on KepLand to match the higher offer price of S$4.60.

That Keppel Land surpassed its base offer price of S$4.38 to approach S$4.60 was taken by analysts as a sign that much of the market is expecting acceptance levels to reach 90 per cent.

Both counters made it to the top two spots by trading value on the Singapore Exchange (SGX): some 25.4 million Keppel Corp shares worth S$207.9 million changed hands while 43.9 million Keppel Land shares, nearly 10 times the average trading volume over the last 10 days, worth S$199.3 million were traded.

The relatively muted market reaction towards Keppel Corp showed the mixed views that analysts and investors had as they weighed the merits of the deal for the conglomerate.

Those who had "buy" calls on Keppel Corp pointed to the company's attractive valuations and dividend yields. However, others warned of headwinds coming from the oil and gas and property sectors. Target prices were a wide range from S$7.65 to S$11.30.

Analysts said that the outlook for Keppel Corp's shares could be cloudy in the near term.

"Given the rich price offered for Keppel Land and (that) synergies for the combination may not be immediately apparent, there may be some near-term weakness in Keppel Corp's share price," said OCBC analyst Low Pei Han.

Agreeing, Maybank Kim Eng analyst Yeak Chee Keong said that investors would not be excited over the stock until Keppel Corp has demonstrated the long-term value it can create through the privatisation of Keppel Land.

Analysts applied steeper conglomerate discount rates of 10-20 per cent as they took into account Keppel Corp's bid to take Keppel Land fully under its fold. If the privatisation is successful, Keppel Corp's 2014 net profit contribution from offshore and marine is seen falling from 55 to 48 per cent. Net profit contributions from property are seen rising from 26 to 35 per cent.

Some, however, reckoned that amid the gloomy outlook in oil and gas, further leaning on property as a diversification is not a bad thing.

JP Morgan analyst Ajay Mirchandani said Keppel Corp shareholders were largely offshore and marine-focused and "the move would partially offset the emerging headwinds for this segment and enable management to continue to focus on returns, efficient use of capital and dividends".

Keppel Corp last Friday ended rife speculation in the market when it launched a two-tier price bid for the shares that it does not own in Keppel Land, its 54.6 per cent real estate subsidiary.

If acceptance levels exceed the 90 per cent threshold, turning the offer into a compulsory acquisition, the offer price would be raised from S$4.38 to S$4.60 a share, valuing the real estate company as much as S$7.1 billion.

Among the more bullish analysts was Macquarie Research analyst Somesh Agarwal, who hailed Keppel's move as a bold one that will help shareholder value. Earnings estimates would go up even as property becomes a larger component of Keppel's profits, he said.

Valuations of Keppel Corp are also now attractive - forward earnings would be 8.3 times, one standard deviation below average levels, Mr Agarwal added. On a price to book basis, Keppel is trading at close to global financial crisis valuations of 1.3 times despite enjoying a 16 per cent return on equity this year.

Keppel's dividend yield is sustainable and can be maintained in the next three years, giving a 5-6 per cent yield, Mr Agarwal added.

At a forward earnings multiple of 9.3 times, Keppel Corp is trading at one of the lowest earnings multiples when compared with regional conglomerates such as Jardine Strategic (13.1 times) and Swire Pacific (14 times), Credit Suisse analyst Gerald Wong noted.

Morgan Stanley, with its "equal-weight" call, was more neutral. It sounded out concerns over privatisation, including expensive inventory at Keppel Land in a weak property cycle, a rich premium for a real estate privatisation, higher gearing, and a potential conglomerate discount.

Hong Kong conglomerates with privately-held property businesses have traded, since 2008, at an average discount to net assets of 33 per cent, its analyst Ling Xin Jin pointed out.

And while Keppel Corp's management had highlighted the possibility of Keppel Land tapping on Keppel Corp's financial might for easier access to financing, Ms Ling noted that Keppel Land had an interest cost of 1.3 per cent in 2014, lower than Keppel Corp's 1.8 per cent.

The move by Keppel Corp also stands out in contrast to the direction taken by Hong Kong conglomerates in recent years, she added.

Conglomerates such as Swire Pacific have spun off their property arms in recent years to unlock shareholder value and narrow their discounts to net asset value.

For Keppel Land, which enjoys a premium of at least 25 per cent over the one-month volume weighted average price through the base-price offer, the surge in its share price came as no surprise.

An analyst, who declined to be named, noted that Keppel Corp had said it was not going to revise the offer price upwards, so from minority shareholders' perspectives, they might as well take the higher price past the 90-per-cent acceptance level threshold. "It's not just about the lower price. With a smaller free float, it could also affect the share price performance post-offer."

UOB Kay Hian analyst Vikrant Pandey noted though that Keppel Land's counter has yet to reach S$4.60, which could indicate slight uncertainty, perhaps from long-term strategic institutional shareholders or retail investors who had bought the stock much earlier at higher prices.

They could be holding back for a higher offer, given that the offer price is still below its net asset value of S$4.95 at end-2014, he said.

-By Andrea Soh & Lee Meixian

KepLand shares surge on takeover bid

Buyout offer by KepCorp sends price of stock to its highest since April 2011

Source: Straits Times / Money

SHARES of property developer Keppel Land surged yesterday after a takeover bid from its parent Keppel Corp was announced last Friday.

KepLand shot up by 25 per cent, or 90 cents, to $4.55, its highest since April 2011. It was one of the most traded stocks on the local bourse, with 43.9 million shares changing hands.

Conglomerate KepCorp rose as well, up six cents to $8.16 on 25.4 million shares traded.

Both stocks resumed trading yesterday after calling a halt last Wednesday morning.

Analysts said yesterday that KepLand shareholders should accept the buyout offer,which could cost KepCorp around $3.2 billion.

KepCorp is offering a two-tier price for the KepLand shares it does not already own: A base one of $4.38 apiece, and $4.60 if its buyout succeeds. This higher price values KepLand at around $7.1 billion.

This offer price includes KepLand's proposed 14-cent dividend for the financial year that ended on Dec 31.

Subtracting the dividend, the higher bid would go down to $4.46, which is 22 per cent over KepLand's close at $3.65 last Tuesday.

"With the near-term softness in the property market, the premium is pretty attractive to Keppel Land shareholders," said Phillip Securities analyst Benjamin Ong.

OCBC Investment Research analyst Eli Lee added in a report yesterday: "Given currently uncertain outlooks for KepLand's core development businesses in Singapore and China, we believe this is a fair enough offer and allows minority shareholders to exit at a share price above the last 36-month high."

However, analysts were slightly more cautious on how the takeover would affect KepCorp, which owns about 54.6 per cent of mainboard-listed KepLand.

KepCorp is paying a hefty price to take KepLand private, but the benefits of the move may not be immediately obvious, they said, adding that the uncertainty could affect its share price in the near future.

"Given the rich price offered for KepLand and that synergies for the combination may not be immediately apparent, there may be some near-term weakness in KepCorp's share price," OCBC Investment Research said in a note yesterday.

"We incorporate a higher conglomerate discount of 10 per cent (from 5 per cent previously) for the privatisation of KepLand... our fair value estimate (for KepCorp) drops from $9.89 to $9.14."

The value of a diversified company may often be weighed down by a so-called "conglomerate discount" on the sum of its parts.

Maybank Kim Eng also said in a report that although the soft property market may make it cheaper to privatise KepLand, "it also works against crystallising value in the near term".

"While KepCorp has hinted that making further attractive property investments may be easier with a fully controlled KepLand and lower capital costs, no concrete plans were communicated," it said. Its target price for KepCorp is $8.60.

However, analysts said KepCorp still had potential to rise in the longer term.

KepCorp chief executive Loh Chin Hua told a briefing last Friday that the conglomerate has made major moves in the past that the market "did not fully appreciate" at the time.

One example he cited was the development of the site of its old shipyard at Keppel Bay into private condominiums.

It had to pay a development charge of about $1 billion to convert the site to residential use, but the properties there are now a source of good returns, he said.

"Even now, every unit we sell in Keppel Bay goes straight to our bottom line because costs are quite low," he said.

-By Melissa Tan

Reignited: privatisation chatter on other firms

No lack of candidates, but analysts caution it's a gamble to bet on next target

Source: Business Times / Stocks

Keppel Corp's offer to take Keppel Land private has brought into focus other potential privatisation targets among listed property developers in Singapore. The names thrown up include Wheelock Properties, GuocoLand, Wing Tai Holdings, Ho Bee Land, Hiap Hoe, Sim Lian Group, and United Industrial Corporation (UIC).

-By Lee Meixian

Several property firms ripe for privatisation

Source: Straits Times / Money

Popular Holdings kicked off the latest round two weeks ago when it announced that it wanted to delist, citing a growing burden of unsold homes.

That was small beer to Keppel Corp's dramatic move last Friday to launch a multi-billion-dollar bid to take its mainboard-listed Keppel Land private.

The Keppel deal is likely to trigger a fresh wave of interest, with analysts pointing to the usual suspects among small- to mid-cap property stocks that seem ripe for delisting.

"Your likes of Wing Tai, Ho Bee, Guocoland, Wheelock, all these will again be seen as potential privatisation candidates," UOB Kay Hian analyst Vikrant Pandey told The Straits Times.

He added in a report yesterday that Hiap Hoe and Sim Lian may also fall under that category.

These six stocks "have high major shareholder stakes, low public float and are trading at deep discounts to their respective RNAVs", he noted.

RNAV, or revalued net asset value, is a metric commonly used to value a developer. It takes into account the market value of the company's assets, rather than the book value.

CIMB Research noted on Sunday that "among smaller caps, Ho Bee stands out as a cheap potential privatisation candidate" because it was trading at around 0.62 times its net asset value.

Other possible targets included Wheelock Properties and Wing Tai, CIMB said.

It added that KepCorp's buyout of KepLand would "unleash liquidity" that could flow into other property stocks.

KepCorp said last Friday that it will pay $4.38 apiece for KepLand shares, but that will rise to $4.60 if it succeeds in buying up the entire company.

The higher price values KepLand at around $7.1 billion, and means that KepCorp may have to shell out up to $3.2 billion or so.

The two-tier bid of $4.38 and $4.60 per share works out to around 88 per cent to 93 per cent of KepLand's net asset value per share, which was $4.95 at the end of last year.

That pricing range "could likely be used as reference for other potential privatisation candidates", CIMB said.

Investors were last gripped by privatisation fever around late April last year, when they drove up several property counters - including the four most-tipped candidates now - amid a spate of takeover offers for property companies such as Singapore Land, CapitaMalls Asia and Hotel Properties Limited.

GuocoLeisure and Bukit Sembawang were also cited as possible privatisation plays at the time.

-By Melissa Tan

CapitaMalls Malaysia Trust buys Petaling Jaya property

Source: Business Times / Companies & Markets

Capitamalls Malaysia Trust (CMMT) is buying Tropicana City Mall and Tropicana City Office Tower in Petaling Jaya, Selangor, for a purchase consideration of RM540 million (S$201.2 million) through its trustee, AmTrustee Berhad. CapitaMalls Malaysia Reit Management Sdn Bhd (CMRM), CMMT's manager, said on Monday that AmTrustee Berhad had signed a conditional sale-and-purchase agreement with Tropicana City Sdn Bhd.

-By Claire Huang

More HDB flats being transacted at or below valuation: SRX

Property analysts say the overall trend is a result of several factors, including a weaker market sentiment and changes to HDB resale procedures put in place last March.

Source: Channel News Asia / Singapore

SINGAPORE: More Housing and Development Board (HDB) resale flats are being transacted at or below valuation. According to latest figures from the Singapore Real Estate Exchange (SRX), about 8,500 HDB resale flats changed hands in 2014.

In the fourth quarter of the year, 41.6 per cent were sold below valuation, compared to 36.9 per cent in the first three months of the year.

For transactions at valuation, these climbed from 15.7 per cent of all transactions in the first quarter to 37.6 per cent in the fourth quarter. On the other hand, the number of transactions above valuation fell from almost 48 per cent of all transactions in the first quarter to 20 per cent in the fourth quarter.

Property analysts said the overall trend is a result of several factors, including a weaker market sentiment and changes to HDB resale procedures put in place last March.

Mr Nicholas Mak, executive director for research and consultancy at SLP International Property Consultants, said: "As buyers and sellers start to be more familiar with these procedures, we also see that the percentage of transactions that were done above valuation has also fallen to just 20 odd per cent. And I think this also shows that the market is starting to stabilise."

- CNA/ms

Companies' Brief

Property Sector

Source: Business Times / Companies & Markets

Singapore property plays are likely to further benefit from a positive spillover effect from the recently announced KepCorp buyout offer for KepLand. Firstly, the potential cash unlocked from this sale could be rotated into other property stocks. Also, the valuation of 0.88-0.93 times P/BV (price-to-book value) could also be used as a benchmark for other potential privatisation candidates.

Keppel Corp, KepLand dominate trading

STI down 12.98 points, probably in response to Greek election results

Source: Business Times / Companies & Markets

Every so often a large-scale privatisation offer comes along to inject life into the local stock market, and so it was that Keppel Corp's bid to take over and delist its property arm Keppel Land (KepLand) boosted Monday's volume to 1.4 billion units worth S$1.48 billion, even as the Straits Times Index (STI) dropped 12.98 points to 3,398.52, probably in response to the outcome of Greece's elections.

-By R Sivaithy

Better if Keppel has shareholders' nod for KepLand bid: observers

Source: Business Times / Stocks

Even as Keppel Corp embarks on a deal that some see has having a transformational effect for the conglomerate, its shareholders would have no say over the offer to take its real estate subsidiary Keppel Land private. This is because the world's largest builder of offshore oil rigs has been given a waiver from the Singapore Exchange (SGX) from the requirement to seek approval from shareholders.

-By Andrea Soh

OUE C-Reit beats its DPU forecasts for Q4, FY2014

Source: Business Times / Companies & Markets

Buoyed by higher-than-expected occupancy and rental reversions, OUE Commercial Reit (OUE C-Reit) achieved a distribution per unit (DPU) of 1.44 Singapore cents for the fourth quarter ended Dec 31, 2014, beating its own forecast by 5.1 per cent. Its net property income for the quarter was S$14.4 million, exceeding its forecast by 14.9 per cent, on the back of S$19.6 million in gross revenue that represented a 12 per cent outperformance compared to its forecast.

-By Lynette Khoo

OUE C-Reit payouts beat own forecast

Strong showing on the back of higher rents, occupancy rates in 4th quarter

Source: Straits Times / Money

RENT rises and higher occupancy rates helped OUE Commercial Reit (OUE C-Reit) deliver better than expected fourth-quarter and full-year distributions.

The Reit posted a distribution to unitholders of $45.9 million for the full year to Dec 31, beating the forecast in its initial public offering by 4.5 per cent.

This translates to a distribution per unit (DPU) of 5.27 cents for the year - 4.4 per cent higher than forecasted.

DPU for the three months to Dec 31 came in at 1.44 cents, up 5.1 per cent from the forecast.

This represents an annualised distribution yield of 7 per cent, based on the Reit's closing price of 80.5 cents on Dec 31.

The Reit pays out its distribution twice a year, and its second distribution for the second half of last year - at 2.84 cents - will be paid out to unitholders on Feb 27.

Gross revenue for the year was $71.5 million, a 3.6 per cent premium over the forecast, thanks to "better than expected occupancy and rental reversions" at its properties, said the Reit manager.

Net property income was also 7 per cent ahead of the forecast at $53.8 million, mainly owing to higher gross revenue and lower utilities expenses.

The Reit's portfolio, comprising OUE Bayfront in Collyer Quay and Lippo Plaza in Shanghai, was valued at $1.6 billion as at Dec 31. This translates to a net asset value per unit of $1.10.

The occupancy rate for its portfolio rose to 98 per cent as at Dec 31, up from the 97.2 per cent in the previous quarter.

This was because Lippo Plaza improved its occupancy rate from 94.4 per cent to 96 per cent, while OUE Bayfront maintained full occupancy, noted Ms Tan Shu Lin, chief executive of the Reit manager.

She also said that office renewal rates at OUE Bayfront and Lippo Plaza were 14.9 per cent and 6 per cent higher, respectively, than preceding rents.

As new supply in the Central Business District continues to be limited over the next 18 months, the manager expects rental growth to "remain positive" this year and, in turn, benefit lease renewals at OUE Bayfront.

The rental outlook for the office market in Shanghai, however, is likely to be subdued, in view of the new supply of office developments coming on-stream this year, as well as potential competition from the supply in decentralised areas.

Still, the manager expects OUE C-Reit to meet the distribution forecast for this year.

OUE C-Reit units closed half a cent higher at 82 cents yesterday.

-By Jacqueline Woo

Ascott to manage three more properties in Beijing, HK

Source: Business Times / Companies & Markets

The Ascott, CapitaLand's wholly owned serviced residence business unit, on Monday said it has secured contracts to manage three more properties in Beijing and Hong Kong. In Beijing, Ascott will manage the 208-unit Citadines Fangshan Beijing and 70-unit Changyang World Serviced Residence Beijing, two adjacent blocks located within Vanke Chang-yang World, a large integrated development which also comprises retail outlets and residences.

-By Jacquelyn Cheok

Ascott wins new contracts in China, HK

Source: Straits Times / Money

MAINBOARD-LISTED CapitaLand said its wholly-owned serviced residence business unit The Ascott has secured contracts to manage three more properties with more than 300 apartment units in Beijing and Hong Kong.

It said the new properties will reinforce Ascott's position as the largest international serviced residence owner-operator in China, with more than 12,900 apartment units in 72 properties across 23 cities.

Ascott secured management of the 208-unit Citadines Fangshan Beijing and 70-unit Changyang World Serviced Residence Beijing through its strategic alliance formed with Chinese developer Vanke last year. The two properties in Beijing are slated to open in 2018.

Ascott also plans to open its fifth property in Hong Kong, the 92-unit Hotel Pravo Hong Kong, in March.

Mr Kevin Goh, Ascott's managing director for North Asia, said: "Ascott has been growing rapidly in China at an annual growth rate of 25 per cent in 2014. Through management contracts, investments and strategic alliances, we have more than doubled the number of apartment units in China within five years, and built a stronghold in the country with the largest market share.

"Last quarter alone, we secured five serviced residences with over 1,000 apartment units in four cities. The three new properties will bring us closer to Ascott's target of 20,000 apartment units in China by 2020."

Viva's Q4 distributable income 1.6% less than own forecast

Source: Business Times / Companies & Markets

Viva Industrial Trust said fourth-quarter distributable income missed its own forecast by 1.6 per cent as finance expenses were higher than expected. Viva, a Singapore business park and industrial stapled real estate investment trust (Reit) and business trust, posted distributable income of S$10.3 million for the three months to Dec 31, 2014.

-By Kenneth Lim

Company briefs

Source: Straits Times / Money

VIVA Industrial Trust, a Singapore-focused business park and industrial property trust, has unveiled a distribution per stapled security (DPS) of 1.701 cents for the quarter ended Dec 31.

This takes Viva's DPS for the full year to 6.833 cents, largely meeting the initial public offering forecast DPS of 6.87 cents.

Distributable income for the fourth quarter and full year were $10.3 million and $41 million, respectively.

Based on Viva's closing price of 79.5 cents on Dec 31, the full year DPS translates to an annual yield of 8.6 per cent.

Frasers Centrepoint Trust

Source: Business Times / Companies & Markets

Frasers Centrepoint Trust (FCT) started FY2015 on a bright note, recording an in-line 10 per cent y-o-y growth in its Q1 FY2015 distribution per unit to 2.75 Singapore cents on the back of a 18.3 per cent increase in growth revenue to S$47.2 million. Management recorded robust rental reversions of 7.7 per cent for its entire portfolio, although remaining leases expiring in FY2015 at Changi City Point may be renewed at softer rates given market conditions.

Rents boost Q3 results for Ascendas India Trust

Source: Straits Times / Money

ASCENDAS India Trust (a-iTrust) has posted stronger third-quarter results, thanks to rental income from the Aviator building which opened in January last year at its Bangalore tech park and rent rises at its Chennai tech park.

Distribution per unit (DPU) for the quarter ended Dec 31 rose 6 per cent to 1.16 cents from the same period a year earlier.

The results were also helped by a 3.4 per cent weakening of the Singapore dollar against the Indian rupee over that time.

The business trust, which owns business space in five information technology parks in India, has its earnings denominated in rupees.

In rupee terms, DPU was up 2 per cent to 0.56 of a rupee (1 Singapore cent).

Third-quarter income available for distribution rose 6 per cent to $11.9 million, driven mainly by higher interest income.

Net property income gained 3 per cent to $18.9 million.

In a statement to the Singapore Exchange yesterday, a-iTrust noted a market research report by JLL which said vacancy rates increased in the third quarter in Bangalore, Chennai and Hyderabad.

But in the micro-markets within these cities where a-iTrust's IT parks are located, JLL expects rents to "remain stable or improve in 2015".

The trust's portfolio occupancy stood at 96 per cent as at Dec 31.

To "meet tenants' expansion plans", a-iTrust is constructing Victor, a new 620,000 sq ft IT building in Bangalore, and developing a new 408,000 sq ft IT building and a multi-level carpark with 660 carpark spaces at The V in Hyderabad, said Mr Sanjeev Dasgupta, chief executive of Ascendas Property Fund Trustee, which manages a-iTrust.

On the capital side, the trust had a 23 per cent gearing as at Dec 31, allowing additional debt headroom of $303.8 million or $987.7 million before gearing reaches the 40 per cent or 60 per cent mark, respectively.

The results were posted after the market closed. a-iTrust units closed unchanged at 90.5 cents yesterday.

-By Marissa Lee

Global Economy & Global Real Estate

China property funding dries up as trusts exit

Default risks at developers expected to rise this year given huge amount of property trust products coming due

Source: Business Times / Real Estate

Stronger Swiss franc hurting landlords

Office vacancies expected to rise further in the next two years as foreign companies find rental rates expensive, say analysts

Source: Business Times / Real Estate

Wanda to invest US$1b in Sydney property development

Source: Business Times / Real Estate

Abu Dhabi property price rise stalls amid oil rout

Source: Business Times / Real Estate

Urban land area growing rapidly in East Asia

Source: Straits Times / Money

THE amount of land in East Asia devoted to urban uses such as apartments and offices has soared in recent years as increasing numbers of people flock to cities, noted a World Bank report yesterday.

There was around 135,000 sq km under urban use in 2010, up from 106,000 sq km in 2000 - a rise of 2.4 per cent a year.

Population growth in these urban areas increased even more rapidly - up 3 per cent a year, from 579 million to 778 million, a migration of nearly 200 million people.

Despite the large numbers, just 36 per cent of the region's population lived in urban areas in 2010, up from 29 per cent in 2000.

The amount of urban land in 2010 also constituted less than 1 per cent of total land in the region, rising from 0.64 per cent to 0.81 per cent over the period.

The World Bank said this suggested that the region's urban expansion had only just begun.

"We are releasing this data so urban leaders can get a better picture and take action to ensure that urban growth benefits the increasing number of people moving to cities, especially the poor," World Bank East Asia and Pacific regional vice-president Axel van Trotsenburg said at the report's release in Singapore yesterday.

China, which embarked on rapid economic expansion over the period, was the biggest contributor to the growth of both population and urban space in the region. Its urban land increased from 66,000 sq km to 89,000 sq km over the decade. Its urban population rose from 346 million, or 27 per cent of its total population, to 477 million, or 36 per cent of its total population.

The 869 urban areas identified in 2010 - defined as built-up land with buildings and populations of 100,000 people or more - included 600 in China, 77 in Indonesia and 59 in Japan. Three of the region's eight mega-cities with populations of over 10 million were found in China - the Pearl River Delta, Shanghai and Beijing.

Apart from China, the report noted that the fastest-growing urban areas were Malaysia's Johor Baru and Cambodia's Phnom Penh. Urban land in Johor Baru, one of 19 urban areas in Malaysia, expanded from 270 sq km to 420 sq km over the 10-year period, while the population rose from 820,000 to 1.3 million.

"Johor Baru saw rapid growth during this period, taking advantage of its location immediately across a narrow strait from Singapore," noted the report.

Singapore, seen as a city-state with a fully urban population by the World Bank, was cited as being a good role model of growth.

"Singapore has done a lot of things right, in terms of integrated land use and transport planning, for example, taking a very long view on urban growth," said Mr Abhas Jha, the World Bank's practice manager for its social, urban, rural and resilience global practice.

Urban land in Singapore rose from 337 sq km to 404 sq km, or an annual increase of 1.8 per cent, while the population rose from 2.5 million to 3.4 million, or an annual increase of 3 per cent.

-By Mok Fei Fei

Dalian Wanda to Spend $1 Billion on Sydney Commercial Project

Source: Bloomberg / News

Dalian Wanda Commercial Properties Co. (3699), the property company of Chinese billionaire Wang Jianlin, plans to invest about $1 billion in a Sydney high-end office and hotel project.

Two of its subsidiaries, including Wanda Hotel Development Co. (169), agreed to buy Gold Fields House at Sydney’s Circular Quay for A$414.7 million ($327.6 million) from Blackstone Group LP (BX), according to company statements yesterday and today. The property group also agreed to acquire nearby Fairfax House for A$73 million, Wanda Hotel said.

The acquisitions add to Dalian Wanda’s expanding overseas portfolio, which holds assets in cities including London, Madrid and Chicago. Chinese property firms and insurance companies are driving cross-border commercial real estate deals, which reached about $700 billion last year.

Wanda Commercial shares gained 5.1 percent, the biggest gain since the company sold shares in Hong Kong last month, at the close of trading. Wanda Hotel rose 6.3 percent, the most in a month.

The two Sydney buildings will be redeveloped to include a 185-meter (607-foot) tower and a 160-room five-star hotel, according to a statement posted on Wanda Commercial’s website. It’s the company’s second investment in Australia after the purchase of a property in Gold Coast in August. It said then it planned to invest $900 million to turn the project into a luxury hotel and serviced apartments.

The sale of Gold Fields House is expected to be completed in March, and Jones Lang LaSalle Inc. and CBRE Group Inc. advised on the deal, according to a Blackstone statement today.

-By Michelle Yun

D.R. Horton Profit Beats Estimates as Home Sales Jumped

Source: Bloomberg / Luxury

D.R. Horton Inc. (DHI), the largest U.S. homebuilder by revenue, reported fiscal first-quarter earnings that beat estimates as sales jumped. The shares rose the most since October.

Net income was $142.5 million, or 39 cents a share, for the three months ended Dec. 31, compared with $123.2 million, or 36 cents, a year earlier, the Fort Worth, Texas-based company said Monday in a statement. The average of 14 analyst estimates was 35 cents a share, according to data compiled by Bloomberg. Results for the quarter included $6 million in inventory and land option charges, according to the statement.

D.R. Horton was one of the first builders to focus on boosting its sales count over increasing profit margins, offering incentives such as price cuts, free appliances and reduced closing costs. Orders in the first quarter rose 35 percent in volume to 7,370 homes and 40 percent in value to $2.1 billion.

D.R. Horton’s “continued solid execution, highlighted by above-average order growth and consistently solid operating margins,” led Wells Fargo & Co. to maintain an outperform rating, the equivalent of a buy, Adam Rudiger, a Boston-based analyst with the bank, said Monday in a note to investors.

The shares climbed 5.5 percent to $24.38, the biggest gain since Oct. 17 and the most among the 11 companies in the Standard & Poor’s Supercomposite Homebuilding Index, which rose 2.2 percent.

NVR Falls

The only company in the index that declined, Reston, Virginia-based NVR Inc., fell 2.7 percent after reporting fourth-quarter earnings that were below analysts’ estimates and orders that increased only 3 percent.

Builders broke ground on single-family homes at an annual pace of 728,000 last month, the most in seven years while remaining more than 30 percent below the U.S. average since 1995, according to Commerce Department data. The department reports December new-home sales tomorrow.

D.R. Horton’s homebuilding revenue rose to $2.3 billion in the quarter from $1.6 billion a year earlier. The gross profit margin for home sales fell to 19.8 percent from 22.3 percent a year earlier, according to Drew Reading, a Bloomberg Intelligence analyst. The average selling price was about $281,000 compared with $263,500 a year earlier, Reading said.

Margins were in line with expectations, according to Rudiger of Wells Fargo.

Volatile Stocks

D.R. Horton’s orders for the quarter and January commentary were both positive, “particularly in light of how volatile homebuilding stocks have been as of late,” Rudiger said in his note. “However, we caution investors from getting too excited as the company noted the same January trend last year, and the spring selling season largely turned out to be a disappointment.”

D.R. Horton sells houses ranging from entry-level Express models to its costlier line of Emerald homes. The company does business in 27 states.

Shares of other builders, including Lennar Corp. and KB Home, fell this month after the companies announced their margins will narrow on rising costs and limited pricing power.

-By John Gittelsohn and Prashant Gopal

Keppel Land Rises Most in Five Years on $2.4 Billion Buyout Plan

Source: Bloomberg / News

Keppel Land Ltd., the property arm of Keppel Corp. (KEP), jumped the most in more than five years in Singapore trading after its biggest shareholder offered as much as S$3.23 billion ($2.4 billion) to buy shares it doesn’t own.

Keppel Land gained as much as 25 percent, the biggest intraday climb since May 2009, to S$4.55 and traded at S$4.54 as of 9:22 a.m. in Singapore. Keppel Corp. advanced as much as 2.2 percent. The stocks resumed trading today after their suspensions on Jan. 21.

“A privatization offer is likely to succeed given the premiums Keppel Corp. has offered relative to Keppel Land’s recent trading history,” analysts Evon Tan and David Lum at Daiwa Securities Group Inc. in Singapore said in a Jan. 23 report. “Trading sentiment in Singapore developers, particularly those seen by the market as possible privatization candidates, will likely see some uplift in trading sentiment.”

Keppel has restructured its assets in telecommunications and infrastructure businesses last year through mergers and pulling them into trusts. Chief Executive Officer Loh Chin Hua said Friday the company wants to become one of the world’s top conglomerates, with businesses ranging from oil rigs to property, infrastructure and logistics.

The rig builder said last week that it will offer as much as S$4.60 a share for the developer’s stock. That was a premium of 26 percent based on Keppel Land’s last trading price of S$3.65 on Jan. 20 in the city.

-By Kyunghee Park

Swiss Offices Get Riskier as Franc Surges: Real Estate

Source: Bloomberg / News

When Swiss Life Holding AG (SLHN)bought an office building in Geneva earlier this month for 535 million Swiss francs ($613 million), it set a record for the city. A day later, the central bank unexpectedly scrapped its currency cap, making the job of leasing the property more difficult.

Investors such as Swiss Life,Switzerland’s largest life insurer, and Pensimo Management AG, a Zurich-based pension fund manager which sealed Bern’s biggest office deal last year, keep buying properties even as rising vacancy rates cause rents to fall, eroding returns. That’s because of a lack of high-yielding alternatives in a country with one of the world’s lowest interest rates.

“There’s a decoupling of the commercial real estate market from the occupier market,” said Fredy Hasenmaile, head of property research at Credit Suisse Group AG (CSGN) in Zurich. “Prices keep going up and we expect vacancies to rise further in the next two years.”

The central bank’s decision to end its three-year-old cap of 1.20 franc per euro, announced on Jan. 15, spurred a record surge in the franc against the single currency, pushing it to the highest in more than three years versus the dollar. That makes Swiss exports more expensive, damaging companies’ revenue and the national economy, and increases the rental costs incurred by foreign companies operating in Switzerland.

‘Superior’ Portfolio

Martin Signer, head of real estate at Swiss Life, said the purchase of Rue du Rhone 8 in Geneva will add to the company’s “superior” property portfolio. The building will this year be renovated by UBS Group AG, the previous owner. While companies including Societe Generale SA (GLE)have agreed to move into the building, 17 percent of the office space remains unleased.

“It’s not unusual that a property has a higher vacancy during a comprehensive refurbishment,” Signer said by e-mail. “We are very confident that this vacancy rate will quickly be reduced, in part because of the unique location and the modern and flexible refurbishment standard.”

Swiss office rentals have languished since 2011. A building boom in Zurich and Geneva, Switzerland’s largest cities, created a surplus of space that forced landlords to cut rents.

The vacancy rate climbed to 5.1 percent in Zurich -- Switzerland’s biggest office market -- in the fourth quarter, the highest since 2004, according to data compiled by Jones Lang LaSalle Inc. Prime annual rents in the Swiss financial capital have fallen from a peak of 1,100 francs a square meter in 2011 to about 825 francs, Jones Lang said.

Falling Rents

In Geneva, the vacancy rate was 4.9 percent, the highest since at least 1998, Jones Lang said. Prime annual rents in Geneva fell 5.1 percent in 2014, to 925 francs per square meter.

The SNB ended its policy of limiting the franc’s value in euros, designed to shield the Swiss economy from the euro area’s sovereign-debt crisis. On the day of the announcement, the franc appreciated as much as 41 percent to 85.17 centimes per euro, the strongest level on record, according to data compiled by Bloomberg.

“The news comes at an inopportune time because we already have a renter’s market and now it will become even more so,” said Claudio Saputelli, head of real estate research at UBS. The Swiss economy probably will grow only 0.5 percent in 2015, instead of 1.8 percent as previously forecast, UBS said after the SNB announced its decision.

A stronger franc may also discourage foreign companies from renting offices in Switzerland, said Martin Bernhard, head of research at Jones Lang LaSalle in Zurich. In December, Google Switzerland said it’s renting 50,000 square meters for its engineering center in Zurich.

‘Think Twice’

“If the franc increases further against the euro and the U.S. dollar, companies will think twice about expanding their presence here because it’s already expensive,” said Bernhard.

Despite these obstacles, insurers and pension funds are eager to buy office properties as a way to earn stable returns, as bond investments offer record-low yields. Office buildings, while offering record-low prime yields of less than 4 percent, still beat negative returns available on the Swiss bond market.

Investors bought about 3.1 billion francs of Swiss commercial properties in 2014, compared with 3.4 billion francs in 2013, according to Jones Lang. Buyer interest has increased since the SNB decision, said Luciano Gabriel, chief executive officer of PSP Swiss Property AG (PSPN), the second-largest Swiss property company by market value.

That’s reflected in the stock market. PSP has gained 5.3 percent since the day before the SNB’s announcement, while Swiss Prime Site AG (SPSN) has risen 2.7 percent. In contrast, Swiss Life has dropped about 15 percent, Credit Suisse has fallen about 16 percent and Cie. Financiere Richemont (CFR), owner of the Cartier brand, has lost 15 percent.

Wealth Funds

Growing demand for buildings isn’t unique to Switzerland: insurers, pension funds and sovereign wealth funds fuelled a $112-billion increase in worldwide property acquisitions in 2014, according to Jones Lang, as investors looked for a safe place to park their cash.

The SNB’s currency move was accompanied by a cut in interest rates, which makes it even more difficult for investors to earn returns in Swiss fixed-income markets, further boosting demand for properties.

The widening divergence between rents and prices is “not a healthy development” because it reflects artificially low interest rates resulting from faulty government debt policies in the euro zone, Gabriel said.

“The gap can remain, but of course it can’t widen indefinitely,” he said.

Meanwhile, investors are hoping that their properties won’t suffer, as long as they buy centrally-located, modern buildings.

“Properties such as Rue du Rhone 8 will remain very attractive,” said Swiss Life’s Signer, referring to the office building the insurer bought in January on Geneva’s upscale luxury-shopping street. “If commercial real estate comes under pressure, it will primarily be the peripheral locations and vulnerable sectors such as retail and gastronomy that are hit.”

-By Dalia Fahmy

China Property Agony Deepens as Trust-Loan Lifelines Cut

Source: Bloomberg / News

China’s investment trusts are pulling financing for the real estate industry as Kaisa Group Holdings Ltd. (1638)’s missed payments heighten default concerns.

Issuance of property-related products, which channel money from wealthy individual investors, tumbled 62 percent from a year earlier to 38.5 billion yuan($6.2 billion) in the fourth quarter, data compiled by research firm Use Trust show. Builders must repay 241 billion yuan of trusts in 2015, up from 178 billion yuan last year. Kaisa, which missed a bond coupon payment this month, failed to repay a 2.5 billion yuan trust last week, people familiar with the matter said.

“The record amount of trust products due is adding to the agony of property developers as they face a withering funding lifeline,” said Shuai Guorang, an analyst based in the southeastern city of Nanchang at Use Trust. “Investor demand for property trusts has declined as they are concerned about developers’ cash supply.”

While Premier Li Keqiang’s relaxation of property curbs has helped underpin a rebound in home sales, investors are speculating more developers may be caught up in an anti-corruption drive. Kaisa, Agile Property Holdings Ltd. (3383) and Hydoo International Holding Ltd., which builds large-scale trade centers, have been linked to probes. Local authorities in Handan, southwest of Beijing, sent work teams into 13 developers after failure to repay funds, Xinhua News Agency reported.

Crunch Risk

“A big portion of shadow bank funding, including trust financing, is borrowed by property developers,” said David Cui, China strategist at Bank of America Corp. “If there is a sharp rise of defaults by the developers, it may cause a shock to investor confidence in shadow banking, which will raise risks of a credit crunch.”

The number of publicly traded real estate firms with debt exceeding equity has increased to 135 out of 336 from 57 in 2007, according to data compiled by Bloomberg.

“Chinese companies’ leverage ratio is too high,” said BOA’s Cui. “The probability of a credit crunch at some point is high.”

Costs Surge

Yields on Chinese speculative-grade debt denominated in dollars climbed to 12.39 percent on Jan. 19, the highest since June 2012, a Bank of America Merrill Lynch index shows. The junk notes have lost 3.2 percent in 2015. The Shanghai Stock Exchange Property Index has dropped 6.1 percent in January, set to end a four-month rally.

China’s economy grew 7.4 percent in 2014, and expansion will slow to 7 percent this year, according to the median estimate in a Bloomberg survey. The yield premium on AA rated corporate notes due in 10 years over similar-maturity government bonds has risen to 299 basis points from as low as 255 last year. The yuan was headed for the biggest two-day loss against the dollar since 2008 today, sliding 0.4 percent to 6.2537 a dollar as of 10:19 a.m. in Shanghai, according to prices from China Foreign Exchange Trade System.

“We are bearish on the property industry,” said Cheng Peng, head of investments at Beijing-based Genial Flow Asset Management Co. “Many third-tier or fourth-tier property developers may run into trouble this year.”

Recent data have showed some signs of recovery in China’s property market. New home sales surged 41 percent to 938.4 billion yuan ($151 billion) in December from the previous month and were 4.2 percent higher than a year earlier, data released by the National Bureau of Statistics on Jan. 20 showed. That made December the first year-on-year increase in 12 months.

‘Still Cautious’

Default risks at developers may continue to rise this year given the huge amount of property trust products coming due, according to Yao Wei, a Paris-based China economist at Societe Generale SA. Smaller developers may be the most vulnerable due to higher debt loads and limited funding channels, she added.

“Even though there is a slight recovery in home sales, consolidation in the property market isn’t over yet and property developers may continue to have a hard time,” Yao said. “Banks are still cautious about lending to developers and trust companies may have also become worried about risks in the property industry after Kaisa’s non-payment.”

Kaisa, a builder based in the southern city of Shenzhen, failed to make a $23 million coupon payment on its $500 million of dollar-denominated bonds earlier this month. The developer is being investigated by the government for dealings with official Jiang Zunyu, who’s been under a probe since October, people familiar with the matter said Jan. 13. Jiang had served as party chief of Shenzhen’s Longgang district, where some approval procedures for Kaisa projects were suspended.

Chinese property developers have sold only 6.5 billion yuan of bonds in onshore and offshore market so far this month, set to make it the slowest January since 2010, according to data compiled by Bloomberg.

“After Kaisa’s trouble, it will become more and more difficult for property companies to get refinancing,” said Li Ning, a bond analyst in Shanghai at Haitong Securities Co., the nation’s second-biggest brokerage.

-By Bloomberg News

Additional Articles of Interests - Local & Overseas Real Estate