ASCENDAS REAL ESTATE INV TRUST (SGX:A17U)
FAR EAST HOSPITALITY TRUST (SGX:Q5T)
CDL HOSPITALITY TRUSTS (SGX:J85)
FRASERS CENTREPOINT TRUST (SGX:J69U)
MAPLETREE INDUSTRIAL TRUST (SGX:ME8U)
Singapore REITs - Easing Into Recovery Mode
DPU recovery: prefer large-caps and laggards
- A benign interest rate regime has helped S-REITs outperform the broader market YTD; the sector dividend yield-spread is at 2.7%, not excessive against peers and history, in our view. See S-REITs share price performance.
- We stay positive on fundamentals, with 3 catalysts supporting valuations into the coming quarters:
- DPU recovery after stable Dec-2018 operational results, led by a positive demand outlook, especially for hospitality;
- traction on capital recycling initiatives; acquisition momentum thus favouring REITs with higher debt headroom; and
- upside risk to DPUs against the backdrop of a slower rate hike cycle.
- Our top picks remain BUY rated Ascendas REIT (SGX:A17U), CDL Hospitality Trusts (SGX:J85) and Frasers Centrepoint Trust (SGX:J69U). They trade at 5.7-6.1% FY19 div yield versus the sector’s 4.9%, and are set to deliver 3.6-6.0% DPU CAGR, against the sector’s 0.5-3.5%.
- Short-term pair trade idea: Long Ascendas REIT and Short CapitaLand Mall Trust (SGX:C38U).
Stable 4Q18 DPUs; positive demand outlook
- 4Q 2018 NPIs and DPUs were mostly safeguarded by contributions from overseas acquisitions and divestments, against more muted organic fundamentals, save for hospitality REITs and office REITs. Large-cap S-REITs ( > SGD2.0b market cap) saw between -4.9% and 6.7% y-o-y DPU growth, driven by better portfolio occupancies, with rent/ RevPAR recovery expected into 2019.
- Industrial REITs performed better; the sector has bottomed out, even as demand remains uneven against the earlier supply surge. Our preferences remain the business parks and high-tech focused Ascendas REIT and Mapletree Industrial Trust (SGX:ME8U).
- CapitaLand Mall Trust’s Westgate deal buoyed the retail REITs’ performance, but larger suburban malls and outlets continued to shine and remain our preferred plays.
- We see a positive demand outlook into the coming quarters for hospitality on the back of 5-6% RevPAR growth, with the recovery to be further strengthened by easing supply.
Capital recycling efforts to gain traction
- We see further momentum in capital recycling given clear (overseas) growth mandates, while narrowing cap rates (in office REITs, hospitality REITs, retail REITs) against tight supply suggest divestment opportunities. Meanwhile, buoyant sector equity market activity since 4Q 2018 could support additional funding initiatives for further deals.
- DPU dilution risks are lower for large-cap Industrial REITs (Ascendas REIT and Mapletree Logistics Trust (SGX:M44U) in Sep 2018 raised SGD452m and SGD375m, while Mapletree Industrial Trust completed a SGD201m EFR in Feb 2019, and CapitaLand Mall Trust raised SGD278m in Oct 2018 for its Westgate acquisition). Frasers Centrepoint Trust’s visible sponsor pipeline is supportive of potential deals.
- S-REITs have shown balance sheet strength; gearing is between 26.3% and 41.9% as of end-Dec 2018 with debt headroom at 6-35% of their AUMs.
Short-term pair trade idea: Ascendas REIT and CapitaLand Mall Trust
- We recommend a relative value pair trade for trading-oriented investors: Long Ascendas REIT and Short CapitaLand Mall Trust.
- Historically, the Ascendas REIT-CapitaLand Mall Trust dividend yield-spread has been at 90bp, but this has widened to 100bps in the past six months given CapitaLand Mall Trust’s strong share price action, partly driven by its Westgate acquisition (announced Aug 2018). CapitaLand Mall Trust’s shares now yield 4.7%, close to 1 SD below its 16-year average of 5.4%.
- We expect this spread to narrow in favour of Ascendas REIT given:
- Recovery in DPUs on the back of improving industrial sector fundamentals, with stronger demand growth outlook for its concentrated Singapore business park portfolio and rising contribution from its overseas deals.
- Catalyst from overseas acquisitions given its SGD0.6-1.6b debt headroom, with aggregate leverage at 36.7% just slightly above its 34.3% 11-year average, and following the completion of two sizeable UK portfolio deals in 2H 2018.
- Weaker outlook for retail REITs, with DPU flat in 2019 and both ours and consensus’ 6.9% y-o-y DPU in 2020 already pricing in Funan’s contribution.
- We estimate the return of this dividend divergence pair trade to be 7.8% (unlevered) including consideration for the cost of carry.
Stock Selection - Top S-REIT BUYs
- Ascendas REIT is the largest and most liquid S-REIT. We expect its rising overseas exposure to offset lower Singapore contributions in the near term. We continue to favour its scale and see it as the best proxy for a recovering industrial sector, given its concentrated business-park and high-spec portfolio, which contributes ~60% of its AUM. Following its UK entry and a stronger sponsor pipeline after the CAPL-Ascendas Singbridge merger, we see further diversification which could provide upside to our FY19-21E 3.0% DPU CAGR.
- See report: Ascendas REIT - Grab-bing More Growth
- Mapletree Industrial Trust has visible growth drivers from its
- AEI at 30A Kallang Place,
- recently completed Sunview 1 BTS data centre, and
- recent acquisition of 18 Tai Seng from its sponsor.
- Its US data-centres should also see rising contributions in FY20. Low 34.7% gearing and clear acquisition-growth potential could provide upside to our 3-year 5.0% DPU CAGR forecast.
- See report: Mapletree Industrial Trust - Delivering On High-Tech
- CDL Hospitality Trusts is our top hospitality sector pick, as its scale and liquidity render it a good proxy for a sustained recovery in Singapore’s hospitality sector. Meanwhile, its overseas expansion has gained traction, with its continued push into Europe supported by positive carry from low funding costs. Low gearing and an estimated SGD600m of debt headroom suggest upside from potentially DPU-accretive deals.
- See report: CDL Hospitality Trusts - Recovery Underway
- Far East Hospitality Trust provides the only pure exposure to our expected rebound in the hospitality segment. Rising contributions from its recently-acquired Oasia Downtown, an expected 5% y-o-y annual recovery in hotel RevPARs and management fees from three Sentosa properties opening this year are expected to anchor its strongest 6% DPU CAGR in FY18-20E. We see stronger DPU upside potential from its higher Singapore RevPAR sensitivity and visible sponsor’s ROFR pipeline.
- See report: Far East Hospitality Trust - Recovery Gaining Traction
- Frasers Centrepoint Trust is our only BUY among the retail REITs for its strengthening suburban-mall footprint, visible growth drivers and potential acquisition catalysts. Gearing of 28.8% and ~SGD800m of debt headroom should support acquisitions. Its sponsor’s pipeline assets – Northpoint City’s South Wing and 33% interest in Waterway Point - could strengthen its suburban footprint.
- See report: Frasers Centrepoint Trust - From Strength To Strength
Hospitality REIT stock selection
- Ascott Residence Trust (SGX:A68U) vs CDL Hospitality Trusts (SGX:J85) vs FAR EAST HOSPITALITY TRUST (SGX:Q5T) vs FRASERS HOSPITALITY TRUST (SGX:ACV).
Industrial REIT stock selection
- Ascendas REIT (SGX:A17U) vs Mapletree Logistics Trust (SGX:M44U) vs Mapletree Industrial Trust (SGX:ME8U) vs AIMS AMP Capital Industrial REIT (SGX:O5RU) vs Cache Logistics Trust (SGX:K2LU).
Retail REIT stock selection
- CapitaLand Mall Trust (SGX:C38U) vs Frasers Centrepoint Trust (SGX:J69U) vs Mapletree Commercial Trust (SGX:N2IU) vs Starhill Global REIT (SGX:P40U) vs SPH REIT (SGX:SK6U).
Chua Su Tye
Maybank Kim Eng Research
|
https://www.maybank-ke.com.sg/
2019-02-27
SGX Stock
Analyst Report
2.950
SAME
2.950
0.750
SAME
0.750
1.800
SAME
1.800
2.550
SAME
2.550
2.200
SAME
2.200
