1Q09 results of the REITs under coverage came in within our expectations, with CCT, CMT and PREIT showing growth in distributable income despite the challenging business environment. ART, being in the hospitality sector, posted a double-digit decline in distributable income, as expected. Post-results, CMT underperformed the FSTREI by 10% while PREIT outperformed by just 5%, lagging behind CCT (14%) and ART (20%). Catalysts for further price upside may come from an increase discretionary spending with the improving equity market and lower unemployment rates in a recovery. Potential AEI or M&A could result in earnings re-rating for PREIT.

Refinancing deals amounting to S$2.4b were completed in 1Q09. These include CCT’s refinancing of the S$580m CMBS and Suntec REIT’s (un-rated) refinancing of S$825m, being the largest deal. Although S-REITs are now being offered higher interest rates, the successful refinancing suggests that the credit-freeze seems to be thawing. As of Mar-09, about S$1.5b remains to be refinanced by end-09

Improving sentiments in the equity capital market could present an opportunity for some S-REITs to recapitalize. We note that the unit prices of CMT and A-REIT held steadily above their respective rights issue prices, notwithstanding the negative impact of dilution. This steady performance is due to the equity raisings being supported by strong sponsors and the proceeds are mainly to re-charge their balance sheets rather than for refinancing distressed loans.


Growth drivers still exist and M&As are not totally ruled out. CMT’s AEI works on Jurong Entertainment Centre and Atrium@Orchard will underpin organic growth in the medium-term. For PREIT, potential for earnings upside could come from AEIs at its Singapore hospitals and pharmaceutical manufacturing facility in Japan.