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Singapore REITs - Maybank Kim Eng 2019-11-20: Staying The Course

Singapore REITs - Maybank Kim Eng Research | SGinvestors.io ASCENDAS REAL ESTATE INV TRUST (SGX:A17U) MAPLETREE INDUSTRIAL TRUST (SGX:ME8U) CDL HOSPITALITY TRUSTS (SGX:J85) FAR EAST HOSPITALITY TRUST (SGX:Q5T) MANULIFE US REIT (SGX:BTOU)

Singapore REITs - Staying The Course


DPU recovery underway; reiterate top picks




Industrial, Retail REITs did better in 3Q2019


Industrial REITs

  • Industrial REITs achieved the strongest NPI growth of 5-101% y-o-y, primarily due to higher contributions from earlier acquisitions. Ascendas REIT saw a 12.0% y-o-y jump in its NPI with the completion of two UK deals in 2H2018.
  • Meanwhile, ESR-REIT (SGX:J91U) doubled its NPI with the addition of Viva’s nine properties post-merger and its acquisition of 15 Greenwich Drive. Its AUM, now at SGD3.0b, places it as the fourth largest industrial REIT. We continue to see
    1. stabilising rents – JTC’s all-industrial rental index was flat in 3Q19; and
    2. easing supply, at +1.7% pa for 2019-21E vs +3.3% in 2014-18.
  • Leasing activity was largely due to renewals and relocations as tenants continued to rightsize or consolidate, while holding back their expansion given uncertain macros, suggesting a slower recovery in rents. Demand remains tilted towards newer business parks and high-spec properties. Pre-commitment levels for new supply at 67-100% are higher than the 55% for the overall industrial sector average, as of end-Sep 2019.
  • Our expectations of a DPU recovery are also supported by contributions from the REITs’ growing pool of overseas assets.

Retail REITs

  • Retail REITs delivered relatively stronger DPU growth during the Sep 2019 quarter, led by CapitaLand Mall Trust (SGX:C38U) at +4.8% y-o-y, with higher contributions from Westgate and Funan. Shopper traffic improved 1-9% y-o-y across portfolios, but tenant sales were mostly lower on weak retail sales, except for prime Orchard Road malls, which were up from a lower base.
  • We believe REIT-owned malls will continue to outperform the broader market in both occupancies and rents. We reiterate our preference for large destination malls and suburban retail assets, which have been more resilient to online competition and weaker tourist spending.
  • We downgraded Frasers Centrepoint Trust (SGX:J69U) to HOLD (from Buy) after its strong 6% YTD sector outperformance, helped by stronger DPU growth fundamentals and recent deals. See report: Frasers Centrepoint Trust - Taking A Breather. While we believe its organic growth is intact, we see rental growth easing at its suburban assets due to slowing retail sales, while further accretive acquisitions may take a while.

Hospitality REITs

  • Hospitality REITs have been laggards in earnings; their DPUs mostly declined with the exception of Ascott Residence Trust (SGX:A68U) - excluding capital distributions from its Ascott Raffles Place divestment, its DPU would have fallen 4.5% y-o-y. Singapore’s RevPAR recovery has started to play out as CDL Hospitality Trusts (SGX:J85) and Frasers Hospitality Trust (SGX:ACV) both registered +4.9% y-o-y in Singapore RevPAR on the back of stronger leisure demand.
  • We see a firm DPU recovery and have penciled in RevPAR growth of 3-5% y-o-y pa following Singapore’s longest-ever RevPAR downcycle. We see this as conservative, given a stronger corporate event calendar in even years and an easing supply of hotel rooms to +1.3% pa over 2018-22E from +5.5% in 2014-17, which should strengthen the RevPAR and DPU recovery in 2020.
  • Tight ~4% domestic yields should continue to push the REITS overseas, into developed markets. These growth efforts should see support from low funding costs, especially in Europe.

Office REIT

  • WeWork’s failed IPO has cast a spotlight on office REITs and their rising co-working tenancies. These are not significant at 0.2-3.0% of gross rental income or NLA.

Contributions from co-working tenancies



REIT Co-working segment contribution Remarks
CapitaLand Commercial Trust (SGX:C61U) < 3% of NLA (7% from 2Q 2021) Asia Square Tower2 (41,000 sf), Capital Tower (53,000 sf), HSBC Building (WeWork at 200,000 sf from 2Q 2021)
Keppel REIT (SGX:K71U) 0.2% of GRI and NLA 8 Exhibition Street (1 floor)
Suntec REIT (SGX:T82U) < 3.0% of NLA Suntec Tower 5, MBFC
Frasers Commercial Trust (SGX:ND8U) 0.6% of NLA China Square Central (WeWork at 17,000 sf), other leases by WeWork and JustCo to commence in coming months
Manulife US REIT (SGX:BTOU) 1.9% of GRI Peachtree, Penn, and 400 Capitol (WeWork contributes 10.0% of GRI)
Keppel Pacific Oak US REIT (SGX:CMOU) 1.3% of CRI, 1.1% of NLA Bellevue Tech Center in Seattle, Great Hills Plaza in Austin, and West Loop in Houston (all Regus)
Prime US REIT (SGX:OXMU) 2.4% of CRI, 1.7% of NLA Tower I at Emeryville (WeWork occupies 57,000 sf)



Deal momentum lifting DPU growth visibility

  • S-REITs went on an acquisition spree in 3Q19, and ranked as the top net buyers of real estate in Singapore over the past four quarters, according to CBRE, ahead of other collective vehicles (eg. property funds) and corporates.
  • S-REITs announced a total of SGD6.5b in acquisitions since Jul 2019, and in spite of their ample debt headroom, mostly funded the transactions by equity (at 64% on average), with DPU accretion for deals announced at 0.6-12.4%. As such, their leverage levels have increased marginally to 35% on average on the back of their larger AUMs.
  • Industrial REITs were the most active in deals, as they pushed ahead with overseas diversification. Post-deals, overseas AUMs for industrial REITs are now at 24-69% of the total, up from 9-67%. Overseas assets are mostly freehold and should continue to strengthen S-REITs’ overall AUM growth, with their relatively longer WALEs and leases embedded by annual rental escalations supporting DPU visibility.
  • We see acquisition momentum continuing into 2020 as a compression in yields and possible higher leverage limit raise debt headroom by 10-16% for AUMs. We anticipate MAS’s decision any day now.
  • See also recent SGX Market Update: S-REITs Held Gains, Issued $940 million in New Units in October 2019.

S-REIT acquisitions from 3Q2019


REIT Ann date Property Value (SGD) (m) Int. % NPI Yld % Debt % Equity % DPU chg %
CapitaLand Commercial Trust (SGX:C61U) 17-Jul Main Airport Center in Frankfurt, Germany 387.1 94.9 4.0 45 55 1.0- 2.5
Mapletree Industrial Trust (SGX:ME8U) 16-Sep 10 US powered base, 3 turnkey data centres 965.0 50 6.0- 6.5 60 40 3.5
Keppel DC REIT (SGX:AJBU) 16-Sep KDC SGP 4 and 1-Net North DC 585.1 99-100 - 20 80 9.4- 12.4
Manulife US REIT (SGX:BTOU) 19-Sep 400 Capitol in Sacramento, California 198.8 100 7.2 28 72 2.3
Mapletree Commercial Trust (SGX:N2IU) 27-Sep Mapletree Business City II in SG 1575.8 100 5.0 43 57 4.8
Mapletree Logistics Trust (SGX:M44U) 21-Oct 7 assets in Malaysia, Vietnam and China 422.0 100 6.1 40 60 1.0
Ascendas REIT (SGX:A17U) 1-Nov Portfolio of 28 US and 2 SG business parks 1665.3 100 6.5 23 77 0.6
SPH REIT (SGX:SK6U) 7-Nov Westfield Marion in Adelaide, S.Australia 636.5 50 5.6 28 72 1.6



‘Yield + growth’ still favour industrials, hospitality, offshore



Top S-REIT BUYs






Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-11-20
SGX Stock Analyst Report BUY MAINTAIN BUY 3.350 SAME 3.350
BUY MAINTAIN BUY 2.70 SAME 2.700
BUY MAINTAIN BUY 1.800 SAME 1.800
BUY MAINTAIN BUY 0.800 SAME 0.800
BUY MAINTAIN BUY 1.050 SAME 1.050


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