ASCENDAS REAL ESTATE INV TRUST (SGX:A17U)
CDL HOSPITALITY TRUSTS (SGX:J85)
FRASERS CENTREPOINT TRUST (SGX:J69U)
Singapore REITs - Yielding Growth
Defensive DPUs: prefer hospitality and industrials for growth & yield catalysts
- We stay positive on S-REITs on the back of three potential valuation drivers in 2019. These are:
- a potential DPU recovery supported by easing supply;
- momentum in overseas expansion, which should be further biased towards developed markets; and
- still-benign interest rates.
- We continue to believe that hospitality REITs and industrial REITs are best placed for growth and yields (6.1-7.8%). We see scope for further DPU yield compression with their underlying recovery off a multi-year low base.
- Our top picks remain
- ASCENDAS REAL ESTATE INV TRUST (SGX:A17U) (BUY, Target Price SGD2.95),
- CDL HOSPITALITY TRUSTS (SGX:J85) (BUY, Target Price SGD1.75) and
- FRASERS CENTREPOINT TRUST (SGX:J69U) (BUY, Target Price SGD2.55).
- Risks are slower-than-expected recovery in demand fundamentals and faster-than-expected rise in interest rates.
Expect DPU recovery, helped by tapering supply
- Hospitality REITs remains our preferred segment as it recovers from low RevPARs after a 4-year downcycle. We forecast 5-8% RevPAR growth for 2019-20E, preferring hotels to serviced residences; they should command stronger pricing power against contracting supply, with new hotel rooms set to slow to a 1.3% CAGR in 2017-20E from 5.5% in 2014-17. See: Singapore REITs 2019 Outlook - Industrials Bottoming Out; Newer Business Parks, High-specs To Continue To Shine
- Meanwhile, overseas acquisitions completed last year are expected to support DPUs for industrial REITs; this mitigates an uneven recovery in Singapore. We continue to see bright spots for business parks and high-spec industrial properties, including from declining office vacancies and 2018’s 10-15% y-o-y rental growth. See: Singapore REITs 2019 Outlook - Industrials Bottoming Out; Newer Business Parks, High-specs To Continue To Shine
- Retail REITs could deliver the strongest DPU growth in 2019 on a cyclical recovery, with DPUs for CAPITALAND MALL TRUST (SGX:C38U) boosted by its acquisition of Westgate (remaining 70% interest) and Funan set to reopen in 1H19. See: Singapore REITs 2019 Outlook - Retail’s Cyclical Upturn; Large Destination Malls Provide Better Exposure
Expect overseas expansion, with clarity on global ambitions
- S-REITs made headlines last year with their string of overseas acquisitions and notable transactions across segments. Their overseas assets have risen to 5-82% of AUM and are expected to grow further. We expect overseas deals to continue to dominate the investment landscape, which should feature both diversification of location and product.
- CAPITALAND LIMITED (SGX:C31)’s proposed acquisition of Ascendas-Singbridge, motivated by scale, has wider implications for the sector, in our view. After completion in 3Q19, it will own the largest REITs across the four asset classes, which could spur corporate activity among the large-cap REITs including a more aggressive push into developed markets.
Prefer yield & acquisition-growth levers
- The REITs have worked their balance sheets hard while demonstrating prudence in increasing fixed-debt ratios; this was in anticipation of rising interest rates. We see further security in DPUs given expectations of still-benign interest rates in 2019-20 on the back of macro uncertainties.
- We continue to see acquisition-growth levers from a high 25-35% of debt headroom in relation to their AUMs.
Chua Su Tye
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2019-01-17
SGX Stock
Analyst Report
2.950
SAME
2.950
1.750
SAME
1.750
2.550
SAME
2.550
