ASCENDAS REAL ESTATE INV TRUST (SGX:A17U)
MAPLETREE INDUSTRIAL TRUST (SGX:ME8U)
MAPLETREE LOGISTICS TRUST (SGX:M44U)
ASCOTT RESIDENCE TRUST (SGX:HMN)
KEPPEL REIT (SGX:K71U)
S-REITs Weekly - Rally Continued, Supported By The Easing Of Leverage Limit
- The S-REITs rally continued, supported by the easing of leverage limit from 45% to 50%, which remains conservative and prudent.
- We put the spotlight on United Hampshire US REIT (SGX:ODBU), which provides an attractive distribution yield of 9.3% for 2020 and 9.6% for 2021. More than 70% of its base rental income is derived from tenants engaged in businesses deemed essential. It benefits from the gradual 3-phase lifting of the US’ lockdown.
WHAT HAPPENED LAST WEEK
- UOBKH S-REIT Index gained 5.8% to reach 225.8 last week. S-REITs continued to rally in a week capped by MAS lifting leverage limit for all S-REITs from 45% to 50%. The announcement was a pleasant positive surprise.
- Top outperformer. The rally was broad-based. ESR REIT (SGX:J91U), ARA US Hospitality Trust (SGX:XZL) and United Hampshire US REIT (SGX:ODBU) gained a massive 25.0%, 20.0% and 19.8% respectively. ESR REIT benefits from lifting of leverage limit due to its high aggregate leverage of 41.5%. ARA US Hospitality Trust and United Hampshire US REIT benefitted from the phased lifting of lockdown in the US. Keppel REIT (SGX:K71U), which was under our spotlight last week, gained a respectable 9.5%.
- Top underperformer: All S-REITs we monitor registered positive gains. CapitaLand Retail China Trust (SGX:AU8U) and Cache Logistics Trust (SGX:K2LU) gained a smaller 0.8% and 1.0% respectively.
- See S-REITs Share Price Performance.
SPOTLIGHT
Downside Risks Alleviated By Changes In Regulations
- Aggregate leverage for all S-REITs lifted to 50%. With immediate effect, MAS will raise the leverage limit for S-REITs from 45% to 50% (minimum requirement for Interest Coverage Ratio of 2.5x deferred to 1 Jan 22). See New Significant Supportive Measures for S-REITs.
- Risk of equity fund-raising addressed. The higher leverage limit of 50% reduces the risk that S-REITs have to embark on equity fund-raising should they suffer drastic losses on revaluation. For example, a S-REIT with aggregate leverage at 40% could weather a fall in portfolio valuation greater than 20% before the new limit of 50% is breached.
- Maintain OVERWEIGHT. Top BUYs are Ascendas REIT (SGX:A17U) (Target: S$3.35), Ascott Residence Trust (SGX:HMN) (Target: S$1.24), Keppel REIT (SGX:K71U) (Target: S$1.30), Mapletree Industrial Trust (SGX:ME8U) (Target: S$2.90) and Mapletree Logistics Trust (SGX:M44U) (Target: S$2.08).
United Hampshire US REIT (SGX:ODBU)
- Caters to essential basic necessities. More than 70% of United Hampshire US REIT (SGX:ODBU)’s base rental income is derived from tenants engaged in businesses deemed essential, such as grocery stores, wholesale clubs, pharmacies and convenience stores. The majority of its grocery-anchored necessity-based strip centres remain open.
- Lockdown gradually lifted. President Donald Trump has announced a 3-phase lifting of lockdown for the US. States should record a 14-day "downward trajectory" in new COVID-19 cases before commencing the 3-phase process to re-open.
- Attractive distribution yield. United Hampshire US REIT’s forecasts for income available for distribution to unitholders are US$24.4m for 2020 (10-month period from 1 Mar 20 to 31 Dec 20) and US$30.3m for 2021. United Hampshire US REIT trades at distribution yield of 9.3% for 2020 and 9.6% for 2021.
- See report: United Hampshire US REIT - UOB Kay Hian 2020-04-14: Defensive Yield From Necessity Consumption Of Groceries & Self-storage.
See attached PDF report for S-REITs peer comparison table.
Jonathan KOH CFA
UOB Kay Hian Research
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Peihao LOKE
UOB Kay Hian
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https://research.uobkayhian.com/
2020-04-20
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