Singapore REITs Analysis - DBS Research 2018-06-26: Pedal To The Metal

Singapore REITs - DBS Vickers 2018-06-26: Pedal To The Metal SREIT Analysis SREIT Return Yield ASCENDAS REAL ESTATE INV TRUST SGX:A17U CDL HOSPITALITY TRUSTS SGX:J85 SUNTEC REAL ESTATE INV TRUST SGX:T82U FRASERS CENTREPOINT TRUST SGX:J69U

Singapore REITs - Pedal To The Metal

  • Investors have misperceived S-REITs as a bond and referenced valuations metrics to an improper period.
  • S-REIT’s ability to pursue DPU-accretive acquisitions to offset higher interest rates under appreciated.
  • Squeeze on tenants starting to occur with Singapore market progressively moving to a landlords market.
  • Top picks: AREITCCTCDREITFCTMLT and Suntec REIT.



Misreading S-REIT drivers.

  • The cautious stance by some investors and sell-side analysts is shaped by their view that
    1. interest rates are rising, and
    2. valuations are “expensive” vs the sector average over the last five years.
  • But we would like to highlight that REITs are not straight out bonds and the impact of rising interest rates is mitigated by an expected upturn in rents.
  • Plus, while acknowledging that current yields and yield spreads are near their 5-year lows, the last five years have largely seen excess supply, falling rents and sluggish business environments. In contrast, we are heading towards a period of easing supply pressure, a more buoyant economy and rising rents.
  • Thus, we believe investors should assess S-REITs’ against their longer historical track record, and against the backdrop of a multi-year upturn in the Singapore property market. This is our base scenario over the next 3-4 years. Under such an environment which also coincides with rising interest rates, yield spreads should tighten to 3% from 3.4% currently.


Value-add using acquisitions; Positive impact from inorganic strategy largely ignored



Pick up selected office and hotel names.

  • Given expectations that the office and hotel sectors should see the strongest pick-up in rents/room rates over the coming year on easing supply pressures, we believe that now is an opportune time to pick up selected names in these two sectors.
  • Our top picks are CCT (Target Price S$2.10), Suntec (Target Price S$2.30) and CDREIT (Target Price S$2.00). 
  • AREIT (Target Price S$3.00) and MLT (Target Price, S$1.48) are also stocks we like given its exposure to the potential turnaround of the industrial sector. Finally, FCT’s (Target Price S$2.45) strong near-term DPU growth, warrants a relook in our view.


SREIT Top Picks

  • For more details on our top picks, see the table below.


Large-cap top picks

REIT Current Price (S$) 12-mth TP (S$) Expected 12-mth Total Return FY18/19F yield FY18/19F P/Bk Rationale
AREIT 2.60 3.00 21% 6.2% 1.23 Steady consistent performer with scale. Overhang from lack of CEO now removed.
CCT 1.64 2.12 35% 5.3% 0.93 Leveraged to the multi-year recovery in the Singapore office market and trades at 1.0x P/Bk, but during an upcycle CCT can trade up to 1.2x P/Bk.
MLT 1.23 1.48 26% 6.3% 1.09 Driven by acquisitions and a portfolio that is skewed more towards e-commerce.
Suntec 1.69 2.30 42% 5.9% 0.80 Play on the turnaround of Suntec Mall and recovery in the Singapore office market, with potential upside from a takeover.


Mid-cap top picks

REIT Current Price (S$) 12-mth TP (S$) Expected 12-mth Total Return FY18/19F yield FY18/19F P/Bk Rationale
CDREIT 1.61 2.00 31% 6.3% 1.05 Leveraged to the multi-year recovery in the Singapore hospitality market.
FCT 2.19 2.45 18% 5.7% 1.08 Strong DPU growth on the back of the completion of AEI at NorthPoint.




Mervin SONG CFA DBS Vickers | Derek TAN DBS Vickers | https://www.dbsvickers.com/ 2018-06-26
SGX Stock Analyst Report BUY Maintain BUY 3.000 Same 3.000
BUY Maintain BUY 2.000 Same 2.000
BUY Maintain BUY 2.300 Same 2.300
BUY Maintain BUY 2.450 Same 2.450



Advertisement



MOST TALKED ABOUT STOCKS / REITS OF THE WEEK



loading.......



ANALYSTS SAY


loading.......