ASCENDAS REAL ESTATE INV TRUST (SGX:A17U)
CDL HOSPITALITY TRUSTS (SGX:J85)
FRASERS CENTREPOINT TRUST (SGX:J69U)
FAR EAST HOSPITALITY TRUST (SGX:Q5T)
MAPLETREE INDUSTRIAL TRUST (SGX:ME8U)
Singapore REITs - Raising Limits, Adding Growth
Acquisition growth levers arising
- We see potential DPU growth levers arising in the coming quarters as MAS seeks feedback on its proposal to increase the leverage limits for S-REITs, which should help support valuations.
- S-REITs have acquired overseas for diversification and growth; yet maintain strong balance sheets. An increase in leverage from 45% to 50% raises debt headroom by 10-14% for AUMs and opportunities for DPU-accretive deals.
- We see industrial S- REITs as likely beneficiaries, especially as they push further into Europe and the US.
- Ascendas REIT (SGX:A17U), Mapletree Industrial Trust (SGX:ME8U), Frasers Centrepoint Trust (SGX:J69U), CDL Hospitality Trusts (SGX:J85) and Far East Hospitality Trust (SGX:Q5T) remain our top picks due to DPU recovery, yields and acquisition-growth upside.
S-REITs acquisitive, overseas deals up DPU visibility
- S-REITs have been acquiring assets since 2015, especially overseas. Contributions from their overseas investments have risen steadily from 27% in 2014 to 60% of total investments in 1H 2019. Overseas assets (mostly freehold, backed by longer WALEs and favourable annual rental-escalation clauses) comprise 5-84% of AUMs and we expect this to grow.
- Currency risks are well-managed with low balance sheet exposure. For S-REITs under coverage, a 5% variation in respective market currencies against the SGD impacts DPUs by up to 11%.
Balance Sheets strong, higher debt headroom adds to growth
- The sector’s 35% average leverage as at end-Jun 2019 remains below the 45% regulatory limit while interest-coverage ratios are healthy at 5.7x on average. S-REITs have extended their debt maturities in recent years, while maintaining their fixed-debt ratios (now just above 81.0% on average) due to lower interest rates over the past year.
- Further interest rate cuts could support DPU upside. We estimate debt headroom at between 11-39% of their AUMs, which could rise to 21-53%.
Growth skewed to industrial REITs pushing overseas
- A wider compression in yields across office, retail and hospitality assets have spurred capital-recycling efforts in Singapore but industrial S-REITs have pushed faster overseas for growth, as supply-led fundamentals are positive but demand recovery remains soft.
- We see a positive-carry for assets in Europe and the US, hence opportunities for further DPU-accretive deals.
Top S-REIT BUYs
- Largest and most liquid industrial S-REIT. Rising overseas exposure to offset lower Singapore contributions 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% to AUM.
- Following its UK entry and a stronger sponsor pipeline after the CAPL-Ascendas Singbridge merger, further diversification is possible which could provide upside to our FY19-21E 3.0% DPU CAGR.
- Report on Ascendas REIT:
- 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 sponsor.
- US data-centre contributions could rise in FY20. Low 33.4% gearing as of end-Jun 2019 and clear acquisition-growth potential could provide upside to our 3-year 5.0% DPU CAGR forecast.
- Report on Mapletree Industrial Trust:
- Top hospitality pick, as scale and liquidity render it a good proxy for a sustained recovery in Singapore’s hospitality sector. Overseas expansion has gained traction, with its continued push into Europe supported by positive carry from low funding costs. Low 35.2% gearing and an estimated SGD550m of debt headroom suggest upside from potentially DPU-accretive deals.
- Report on CDL Hospitality Trusts:
- The only pure exposure to our expected rebound in Singapore hospitality. Rising contributions from its recently-acquired Oasia Downtown, an expected 2-5% y-o-y annual recovery in hotel RevPARs and management fees from three Sentosa properties opening this year are expected to anchor its strongest DPU CAGR in FY18-20E. We see stronger DPU upside potential from its higher Singapore RevPAR sensitivity and visible sponsor’s ROFR pipeline.
- Report on Far East Hospitality Trust:
- Our only BUY among retail REITs for its strengthening suburban-mall footprint, visible growth drivers and potential acquisition catalysts. Gearing of 23.5% and SGD800m of debt headroom should support acquisitions. Sponsor’s pipeline assets – Northpoint City’s South Wing and 33% interest in Waterway Point acquired in May 2019 - could strengthen its growth profile.
- Report on Frasers Centrepoint Trust:
- First pure-play US office REIT listed in Asia - 55% of leases have fixed rental escalations averaging 2.5% pa, 39% under periodic rental increases; should support stable income growth and DPU visibility. Has completed five acquisitions totalling USD842m since IPO and expected to scale up AUM, supported by sponsor Manulife’s asset pipeline.
- Report on Manulife US REIT:
See attached PDF report for complete analysis.
Chua Su Tye
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2019-09-18
SGX Stock
Analyst Report
3.300
SAME
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1.800
SAME
1.800
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