REITs - RHB Invest 2015-12-02: Flavourless 2016 For SREITs

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CAPITALAND COMMERCIAL TRUST C61U.SI  CAPITALAND MALL TRUST C38U.SI  STARHILL GLOBAL REIT P40U.SI  SUNTEC REAL ESTATE INV TRUST T82U.SI  FRASERS COMMERCIAL TRUST ND8U.SI 

REITs - Flavourless 2016 For SREITs 

• YTD SREITs performed -10.0%, dragged mostly by office REITs (- 21.3%). 
• Maintain UNDERWEIGHT. 
• Going into 2016, we expect yields to expand further in a 7.7-8.1% range (7.1% now) as unfavourable supply-demand dynamics persist. 
• We see limited growth too as acquisition initiatives are set to fall on borrowing cost hikes and 2017’s 45% maximum gearing ratio limit. 
• As we expect rental rates and RevPARs to drop, coupled with limited growth, we find SREITs unappealing. 

 Unappetising growth in 2016. 

• 9M15 results for the SREITs within our coverage were in line with our estimates. Rental reversions were mostly positive, while occupancy rates were relatively stable across all segments. 
• We are not expecting much organic growth within the Singapore properties segment as we observed an increasing number of REIT mangers seeking growth outside the island. 
• In addition, we expect REIT managers to slow down their acquisition spree as: 
  1. borrowing costs creep upwards, and 
  2. the maximum gearing ratio limit of 45% kicks in come 2017. 

 Most bearish on the office REIT segment. 

• We are expecting the office leasing market to remain challenging as supply demand dynamics continue to be challenging. Given the supply glut (2016: 4.3m sq ft), we are expecting office rental rates to decline 15% by end-2016 from their peak of SGD11.40psf/month in 1Q15. 
• In addition, we note that there is a shift in demand from the banks and technology companies, as these large corporate are consolidating their operations towards business parks. 
• We have SELL calls on CapitaLand Commercial Trust, Keppel REIT and Suntec REIT. 

 We maintain our preference for retail REITs. 

• 3Q15 results have proven that retail REITs continue to remain resilient as occupancy has remained high and most registered positive rental reversions. 
• As we continue to see an uptrend in retail REITs’ shoppers’ footfall and tenants’ sales, we expect this trend to persist in 2016. 
• Maintain BUY on Frasers Centrepoint Trust, CapitaLand Mall Trust and Starhill Global REIT. 

 Maintain UNDERWEIGHT. 

• As we expect headwinds to persist across the sub-sectors, we maintain our UNDERWEIGHT call on SREITs.

Ivan Looi RHB Research | Ong Kian Lin RHB Research | http://www.rhbinvest.com.sg/ 2015-12-02

RHB Research SGX Stock Analyst Report SELL Maintain SELL 1.15 Same 1.15

BUY Maintain BUY 2.29 Same 2.29

BUY Maintain BUY 0.93 Same 0.93

SELL Maintain SELL 1.31 Same 1.31

BUY Maintain BUY 1.54 Same 1.54