REITs – Singapore - UOB Kay Hian 2019-12-04: M&A Galore Foreshadows More Consolidation Between Smaller S-REITs

REITs – Singapore - UOB Kay Hian Research | SGinvestors.io ESR-REIT (SGX:J91U) AIMS APAC REIT (SGX:O5RU) MAPLETREE INDUSTRIAL TRUST (SGX:ME8U) MAPLETREE LOGISTICS TRUST (SGX:M44U) SABANA SHARI'AH COMPLIANT REIT (SGX:M1GU)

REITs – Singapore - M&A Galore Foreshadows More Consolidation Between Smaller S-REITs




WHAT’S NEW


Coming together to become bigger.


Increased scale and diversification.

  • The enlarged hybrid REIT will have a diversified portfolio across Logistics & Industrial (58.4%), CBD Commercial (21.7%) and Office & Business Parks (19.9%). It will have 98 properties spread across five countries valued at S$5.5b (Frasers Logistics & Industrial Trust: S$3.3b and Frasers Commercial Trust: S$2.2b) with 2.6m sqm of space and 300 tenants.

Potential increase in index weightage.


More beneficial for Frasers Logistics & Industrial Trust unitholders.



ACTION


Size matters to research coverage.

  • Market cap and trading liquidity are important considerations when SELL-side analysts decide on their universe of coverage. Priority is given to S-REITs with large market cap that are included in major indices with well recognised sponsors. Smaller S-REITs are often overlooked by institutional funds and thinly traded.
  • The on-going consolidation of smaller S-REIT to enhance scale will keep sentiment towards S-REIT buoyant and positive.

Maintain OVERWEIGHT.

  • We see an environment of persistently low interest rates, which will keep interest fixated on yield plays, such as S-REITs. We highlight some potential candidates for merger:

MAPLETREE LOGISTICS TRUST (SGX:M44U) and MAPLETREE INDUSTRIAL TRUST (SGX:ME8U)


ESR-REIT (SGX:J91U) and SABANA SHARI'AH COMPLIANT REIT (SGX:M1GU)

  • ESR Cayman has cross ownership of the managers of ESR-REIT and Sabana REIT, which has a similar mandate to invest in industrial properties. Conflict of interest would be removed if ESR-REIT merges with Sabana REIT. ESR Cayman owns 8.5% of ESR-REIT and 21.3% of Sabana REIT. Tong Jinquan, founder of Shanghai-based Summit Property Development, owns 30.8% of ESR-REIT and 6.6% of Sabana REIT.

ESR-REIT (SGX:J91U) and AIMS APAC REIT (SGX:O5RU)

  • ESR Cayman, sponsor of ESR-REIT, bought 26.8m units of AIMS APAC REIT for S$37.3m in Nov 19. The transaction increased ESR Cayman’s deemed interest in AIMS APAC REIT by 3.9ppt to 9.1%.
  • Both ESR-REIT and AIMS APAC REIT invest primarily in industrial properties in Singapore. ESR-REIT and AIMS APAC REIT are ranked the 22nd and 32nd S-REITs in terms of market cap. Combining the two S-REITs will propel the enlarged REIT to become the 17th largest with combined market cap of S$2.5b.


SECTOR CATALYSTS

  • Environment of persistently low interest rates, which will keep interest fixated on yield plays, such as S-REITs.
  • Limited new supply for office, hotel, logistics and retail segments in 2020.


ASSUMPTION CHANGES

  • We keep our earnings forecast unchanged.


RISKS

  • Uncertainties from US-China trade conflict.





Jonathan KOH CFA UOB Kay Hian Research | Peihao LOKE UOB Kay Hian | https://research.uobkayhian.com/ 2019-12-04
SGX Stock Analyst Report NOT RATED MAINTAIN NOT RATED 99998 SAME 99998
NOT RATED MAINTAIN NOT RATED 99998 SAME 99998
BUY MAINTAIN BUY 2.900 SAME 2.900
HOLD MAINTAIN HOLD 1.390 SAME 1.390
NOT RATED MAINTAIN NOT RATED 99998 SAME 99998



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