Industriial_REITS_CIMB_report_Jun2017

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1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 Property│Singapore│REIT│June 22, 2017 Let’s go for a bus ride! Business parks to recover first We reiterate our view that business parks would be the first sub-asset class to post recovery gains this year, given easing supply and demand from science (including biomedical), technology (including fintech) and media sectors. Next, we expect Grade A office to bottom out at end-17. Plagued by strong completions this year, we believe that warehouses and hotels would only recover in 2018. While we agree with consensus that retail is gripped by structural challenges, and it is difficult to pinpoint a recovery, we expect suburban malls to remain resilient. 1Q17 data points underscore our positivity Amid the lack of new supply, occupancy of business parks increased 1% pt qoq to 84% in 1Q17 (according to government agency JTC), marking the third consecutive quarter of increased take-up. Rents also remained steady. With very little supply post-16, we project occupancy to increase to 88.5% by end-17F and 92.4% by end-18F. We believe that rents would start to strengthen when island-wide occupancy meets the 90% mark; and expect capital values to move in tandem. Some of the notable incoming new supply in 2018 includes FM Global’s new purpose-built facility in the Singapore Science Park (c.100k sq ft) and Kingsmen Creative’s new headquarters in Changi Business Park (c.113k sq ft). These are single-user facilities. For 2019, Jones Lang LaSalle (JLL) projects new supply to increase to 700k sq ft, stemming from three multiple-user business park developments. Two of the developments obtained provisional planning permission (PP) in 1Q17. Specifically, Boustead’s upcoming project at Media Circle within Mediapolis in one-north (c.173k sq ft) obtained PP in Feb 17. From our site-tour, we observed that construction for the development has commenced. Second, the redevelopment of Fleming and Faraday (c.221k sq ft) in Singapore Science Park obtained PP in Jan 17. The third project involves the redevelopment of Aquarius in Singapore Science Park which could potentially yield 300k sq ft of business park space. Figure 2: Annual demand, supply and occupancy of business parks: pending the three projects in 2019, there is a supply gap 250 200 150 100 50 82.8% 80.9% 84.1% 79.8% 84.1% 83.0% 88.5% 92.4% 98.9% 100% 95% 90% 85% 80% 75% Figure 3: According to CBRE, business park (city fringe) rents remained stable at S$5.50 in 1Q17; rest of island at S$3.70 (S$ psf pm) 7.00 6.50 6.00 5.50 5.00 4.50 4.00 3.50 3.00 2.50 Title: Source: Please fill in the values above to have them entered in your report 2.00 0 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F Annual supply Annual demand Occupancy (RHS) 70% Business Park (city fringe) Business Park (Rest of the Island) SOURCES: CIMB, JTC SOURCES: CIMB, CBRE 2
Property│Singapore│REIT│June 22, 2017 Figure 4: 56% of business park space is in the central region, comprising one-north, Singapore Science Park and MBC I Figure 5: Business park clusters in Singapore Title: Source: West, 18% West, 18% Please fill in the values above to have them entered in your report Central, 56% East, 26% Central, 56% East, 26% West East Central West East Central SOURCES: CIMB, CBRE, JTC SOURCES: ONEMAP, CBRE Kick the tyres: from West to East Singapore Science Park For our first stop, we visited Ascent in Singapore Science Park. Singapore Science Park is the island-state’s first “park-like” development developed in 1982 by the then Technology Parks (now known as Ascendas-Singbridge Group). The park is home to many research and technology companies such as Defence Science Organisation National Laboratories, Defence Science and Technology Agency, Avaya, Quintiles and Shimadzu. AREIT (Hold, S$2.59) owns a total of 11 properties in Singapore Science Park with aggregate NLA (net leasable area) of c.273k sq m. Of which, the most recent acquisition is 12, 14 & 16 Science Park Drive, which was completed in Feb 2017. Underpinned by 100% occupancy, 16.5 years WALE (weighted average lease expiry) and average built-in escalation of 2.2-2.5% p.a., the single-tenanted buildings were acquired for S$420m or 6.3% NPI entry yield. Meanwhile, Ascendas-Singbridge owns seven properties in Singapore Science Park with an aggregate NLA of 92k sq m. Ascent is Ascendas-Singbrige’s latest development in Science Park and was completed last year. The property is located at the gateway of Singapore Science Park 1 and is a 5-minute walk to the Kent Ridge MRT station. It is a 7- storey integrated development offering c.40k sq m of business park space, plus 4k sq m for retail and F&B outlets. We were impressed with the property’s large floor plates, green landscaping and innovative use of space (i.e. lobby concept). We believe that Ascent is around 95% occupied. Its anchor tenants include i) Johnson & Johnson (which has relocated from The Strategy in International Business Park, and is taking up more space vs. its previous premise), ii) global pharmaceutical company, Merck and iii) Dyson, the British technology company which is famous for its bladeless fans. It was reported that Dyson opened its new S$587m Singapore Technology Centre in Ascent in Feb 2017. Undoubtedly, one of the highlights of the site tour was the visit to co-working space operator Spacemob, which recently leased c.14k sq ft of space in Ascent. We believe that Spacemob is the first to provide co-working space in a business park. In line with JTC requirements, only qualifying tenants/activities are allowed to subscribe for Spacemob membership. Typical qualifying activities include high technology, R&D, e-businesses, media, back-office functions, and other highvalue added, knowledge-based activities. Bundled with services (i.e. payroll, WIFI, 24/7 access, meeting room bookings, snacks), Spacemob provides a range of membership plans from basic to fixed desk, which are priced from S$50/month to S$550/month. 3
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Industriial_REITS_CIMB_report_Jun2017

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