Singapore REITs
SREIT 1Q17 Results
KEPPEL DC REIT
AJBU.SI
ASCOTT RESIDENCE TRUST
A68U.SI
OUE COMMERCIAL REIT
TS0U.SI
MAPLETREE LOGISTICS TRUST
M44U.SI
REIT - 1Q17 results preview
- REITs’ results are scheduled to kick off in mid-Apr. We expect a muted reporting season with no surprises. That said, we highlight KDCREIT to be ahead of consensus’ numbers.
- The leasing market is expected to stay lacklustre, and we expect a downward bias in rental reversions. Nonetheless, occupancies across sub-sectors are expected to hold.
- REITs’ gearings are expected to hold or even dip very slightly. We observe that ART and OUECT undertook pre-emptive moves to raise equity. We would also continue to monitor borrowing costs.
- Notwithstanding the higher rate climate, we believe that REITs, in particular, the industrial ones, remain in an acquisitive mood. For example, AREIT is looking at business parks opportunities in Australia; MLT could acquire from its sponsor’s extensive pipeline.
- Lastly, strategic moves by e-Shang Redwood/Warburg Pincus hint at a potential consolidation among the small/mid-cap industrial REITS.
Office: rental declines could decelerate
- In its latest quarterly survey of private sector economists, the Monetary Authority of Singapore (MAS) showed that 23 respondents had revised GDP growth to 2.3% for this year, up from the previous forecast of 1.5%. The higher confidence gives hope that office could be nearer to the bottom.
- We expect Grade A office rent to decline another c.5% in 2017 to S$8.65 psf pm (4Q16: S$9.10), representing a peak-to-trough of almost 30%. Meanwhile, we project office vacancy levels to peak at 13.2% as at end-17 vs. 11.1% in 4Q16. We expect negative rental reversion for office REITs in 1Q17, although the effect is mitigated by relatively short lease expiry towers.
- In addition, large net-occupiers of office space continue to come from the TMT (Tech, Media & Telco) sector. During the quarter, Facebook was reported to be taking up more than 250k of space over several floors at Marina One (or around 13% of the office’s NLA). Ride-hailing company, Grab, was also reported to expand its R&D centre to a much larger office of almost 100k sq ft in the CBD. Its R&D centre is currently housed in a 4,500 sq ft office in Midview City, an industrial zone.
- Further, the investment market continues to receive steady interest. GSH Plaza was sold to HK-listed Fullshare Holdings for S$725m, implying S$2,900 psf pricing or 11.5% premium to the S$2,600 psf inferred from the recent bulk purchase of units in Prudential Tower, located just across the road.
Retail: near-term rent correction could persist
- Excluding motor vehicles, retail sales rose 2% yoy in Jan. Top performers were supermarkets and F&B outlets. Notwithstanding weak consumer confidence, there was still new-to-market entrants, which were dominated by new operators within the F&B sector. Some examples include Greyhound Café in Paragon, Gudetama in Suntec City mall and Kam’s Roast Goose in Pacific Plaza.
- Victoria’s Secret opened its Southeast Asia flagship store within the 12k sq ft duplex store in Mandarin Gallery. That said, fashion remained weak, with John Little closing its last outlet in Plaza Singapura, bringing its 174-year stay on the island shores to an end.
- We expect rental reversions for the well-positioned retail REITs to remain moderately positive, though shopper traffic and tenant sales may not impress.
- For FCT, we expect the peak of Northpoint’s AEI to pass through in 1Q17, and for occupancy to start trending up.
- Looking ahead, we project elevated supply passing through, with the bulk of the new supply in the city fringe and suburban areas. As such, we expect near-term pressure on rents as landlords are pushed to fill up the pre-commitments.
Industrial: some pick-up in activity
- On the back of stabilisation in China, Singapore’s Industrial Production Index (IPI) rose 12.6% yoy in Feb, surging from a 3.8% rise the month before. PMI continued to expand in Feb, albeit at a slower clip, dipping to 51.4 in Feb, from 51.6 in Jan. Rent index for all industrial space fell by 0.5% in 4Q16, and we expect slight downward pressure on rents for industrial REITs in 1Q17.
- Portfolio occupancies should continue to stay firm as industrial REITs focus on tenant retention. We would also look for data points of a confirmation of a bottom for business parks.
- For 1Q17, AREIT is set to benefit from the first contributions of the three buildings acquired at Science Park Drive, while MLT would have full-quarter contribution from the four acquired properties in Victoria, Australia. We also expect KDCREIT to enjoy a disproportionately stronger quarter as it will have an additional one-month contribution from SGP 3. Lastly, MINT announced that it would be developing its third build-to-suit (BTS) data centre for an established data centre operator (a new client) at c.S$60m.
Hotel: difficult to deduce Jan data points
- According to Singapore Tourism Board (STB), visitor arrivals in Jan 17 grew at a healthy 4.8% yoy to 1.48m, thanks largely to Chinese visitors (+38% yoy). Unlike 2016, visitor days also improved in lock-step, at 4.9% yoy to 5.2m days.
- Industry RevPAR looked encouraging, with 2.7% yoy improvement in Jan.
- Digging deeper, however, the RevPAR picture is mixed, with luxury up 15.4% yoy. Upscale and mid-tier – where most of the REITs’ hotels straddle – registered -1% yoy and -10.8% yoy respectively.
- Meanwhile, STR Global surveyed that Singapore RevPAR declined 4.1% yoy in Jan and 7.2% yoy in Feb (in its preliminary estimates). Hence, we believe that performance by the hospitality REITs could be uneven.
- We continue to expect RevPARs for our hospitality REIT coverage to further edge downwards for 2017, but by a smaller magnitude vs. 2016.
- Recall that CDREIT reported that its Singapore RevPAR decreased by 0.9% yoy for the first 24 days of Jan. Due to the recent dilutive rights issue, we expect ART to report headline 8-9% yoy decline for its 1Q17 DPU.
YEO Zhi Bin
CIMB Research
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LOCK Mun Yee
CIMB Research
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http://research.itradecimb.com/
2017-03-31
CIMB Research
SGX Stock
Analyst Report
1.210
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1.000
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0.650
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0.650
1.020
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