CAPITALAND MALL TRUST (SGX:C38U)
FRASERS CENTREPOINT TRUST (SGX:J69U)
ASCOTT RESIDENCE TRUST (SGX:HMN)
FAR EAST HOSPITALITY TRUST (SGX:Q5T)
KEPPEL REIT (SGX:K71U)
S-REITs Weekly - Repositioned Our Top 5 Picks
- We repositioned our top-5 picks to focus on retail and hospitality REITs, which are the biggest beneficiaries of Phase 2 of reopening post Circuit Breaker. The transition to Phase 2 could occur before end-June if community transmission remains low and stable during the first two weeks of June. Almost the entire economy would reopen during Phase 2.
- BUY
- CapitaLand Mall Trust (Target Price: S$2.60),
- Frasers Centrepoint Trust (Target Price: S$2.85),
- Ascott Residence Trust (Target Price: S$1.16),
- Far East Hospitality Trust (Target Price: S$0.62) and
- Keppel REIT (Target Price: S$1.30).
- Maintain OVERWEIGHT.
WHAT HAPPENED LAST WEEK
UOBKH S-REIT Index gained 8.2% to 248.3 last week.
- In the Fortitude Budget announced last Tuesday, cash grants will be provided to offset rental costs of SME tenants (annual turnover not more than S$100m) to be disbursed through their landlords from end-July. The new cash grant is equivalent to 0.8 month’s rent for retail shops and 0.64 month’s rent for industrial and office properties. Together with the Property Tax Rebate announced previously, total government support amounts to two months of rent for SME tenants at retail shops and one month of rent for SME tenants at industrial and office properties.
- See S-REITs Share Price Performance.
Top outperformer.
- Retail REITs Lendlease REIT (SGX:JYEU), CapitaLand Mall Trust and Sasseur REIT (SGX:CRPU) gained 17.5%, 9.7% and 8.1% respectively.
- US REITs Keppel Pacific Oak US REIT (SGX:CMOU), Manulife US REIT (SGX:BTOU) and Prime US REIT (SGX:OXMU) gained 16.7%, 16.1% and 9.6% respectively.
- Ascott Residence Trust gained 12%. It did not exercise option to redeem its S$250m perpetual securities, and distribution payment will reset to about 3% based on 5-year Swap Offer rate plus 2.5% on 30 Jun 20 (current distribution payment: 4.68%).
- Mapletree Logistics Trust (SGX:M44U) gained 12% due to inclusion to the MSCI Singapore Index.
Top underperformer.
- All S-REITs within our universe recorded positive gains. Among S-REITs that registered smaller gains, CapitaLand Retail China Trust (SGX:AU8U) gained 1.6% while Frasers Logistics & Commercial Trust (SGX:BUOU) gained 1.8%.
SPOTLIGHT – REPOSITIONING FOR PHASE 2 OF REOPENING
Earlier start to Phase 2 catalyst for retail REITs.
- Minister Lawrence Wong, co-chair of multi-ministry taskforce on COVID-19 announced that the government will monitor community transmission during the first two weeks of June and decide on whether to move to Phase 2 by the middle of June. This means that Singapore could make the transition to Phase 2 before the end of June. Phase 2 entails reopening of retail shops, including dining in at F&B outlets subject to cap of five people per group.
Beginning of the end for COVID-19 pandemic.
- Singapore and China will launch “green lane” for essential travel with clear protocols, including testing of travellers, in early June. The arrangement starts with six provinces and municipalities, such as Shanghai, Tianjin, Chongqing, Guangdong, Jiangsu and Zhejiang, before expanding to other areas. Singapore is also working on finalising guidelines on resumption of essential cross-border travel with Australia, Canada, South Korea and New Zealand.
- These initiatives are aimed at essential business travel. Mass market travel is expected to take longer time to resume. Thus, our picks for Hospitality REITs focus on defensive qualities, such as resiliency from serviced residences and high fixed rents.
CapitaLand Mall Trust (SGX:C38U) (BUY/ Target Price: S$2.60).
- The proposed merger of CapitaLand Mall Trust and CapitaLand Commercial Trust (SGX:C61U) will create a diversified commercial REIT with increased scale to pursue acquisitions and integrated developments. CapitaLand Mall Trust will morph into the third-largest REIT in the Asia Pacific region. Currently, downtown malls account for 52% of CapitaLand Mall Trust's portfolio valuation, vs 48% for suburban malls. Funan was successfully reopened in Jun 19 and will make full-year contribution in 2020. CapitaLand Mall Trust will provide 2021 distribution yield of 5.9%, which is attractive given its size and scale.
- See CapitaLand Mall Trust Share Price; CapitaLand Mall Trust Target Price; CapitaLand Mall Trust Analyst Reports; CapitaLand Mall Trust Dividend History; CapitaLand Mall Trust Announcements; CapitaLand Mall Trust Latest News.
Frasers Centrepoint Trust (SGX:J69U) (BUY/ Target Price: S$2.85).
- Frasers Centrepoint Trust is a pure play on suburban retail malls in Singapore. It achieved strong positive rental reversions of 5.0% for FY19 and 5.2% in 1HFY20. Frasers Centrepoint Trust has a strong pipeline of assets from sponsor Frasers Property (SGX:TQ5) to scale up for the next phase of growth:
- the remaining 60% stake in Waterway Point;
- 63.1% stake in PGIM ARF, which owns five suburban retail malls (Tiong Bahru Plaza, White Sands, Hougang Mall, Century Square and Tampines1), and
- Northpoint City South Wing.
- See Frasers Centrepoint Trust Share Price; Frasers Centrepoint Trust Target Price; Frasers Centrepoint Trust Analyst Reports; Frasers Centrepoint Trust Dividend History; Frasers Centrepoint Trust Announcements; Frasers Centrepoint Trust Latest News.
Far East Hospitality Trust (SGX:Q5T) (BUY/ Target Price: S$0.62).
- The negative impact from the COVID-19 pandemic is mitigated by its master lease structure, under which fixed rents accounted for 72% of Far East Hospitality Trust's 2019 gross revenue. Sponsor Far East Organisation (FEO), which owns 61% of Far East Hospitality Trust, has strong balance sheet and impeccable track record. Far East Hospitality Trust trades at an attractive P/NAV of 0.58x and distribution yield should improve to 7.2% in 2021.
- See Far East Hospitality Trust Share Price; Far East Hospitality Trust Target Price; Far East Hospitality Trust Analyst Reports; Far East Hospitality Trust Dividend History; Far East Hospitality Trust Announcements; Far East Hospitality Trust Latest News.
Ascott Residence Trust (SGX:HMN) (BUY/ Target Price: S$1.16).
- 40% of Ascott Residence Trust's 2019 gross profit was from stable income sources (master leases and management contracts with minimum guaranteed income) and 60% was from growth income sources (management contracts). The average length of stay for properties on management contracts was approximately three months. It also owns 11 rental housing properties in Japan with leases averaging more than one year.
- See Ascott Residence Trust Share Price; Ascott Residence Trust Target Price; Ascott Residence Trust Analyst Reports; Ascott Residence Trust Dividend History; Ascott Residence Trust Announcements; Ascott Residence Trust Latest News.
Keppel REIT (SGX:K71U) (BUY/ Target Price: S$1.30).
- Keppel REIT’s Singapore portfolio is expected to maintain positive reversions as the average rents for expiring leases are low at S$9.69psf pm for 2020 and S$9.74psf pm for 2021. Management expects handover of 311 Spencer Street, a 40-storey freehold Grade-A office building in Melbourne, by end-2Q20. The 30-year lease to Victoria Police will commence and start contributing in 3Q20. Co-working operators accounted for only 0.8% of Keppel REIT’s NLA and 0.7% of gross rental income.
- See Keppel REIT Share Price; Keppel REIT Target Price; Keppel REIT Analyst Reports; Keppel REIT Dividend History; Keppel REIT Announcements; Keppel REIT Latest News.
See PDF report attached below for S-REIT peer comparison table.
Jonathan KOH CFA
UOB Kay Hian Research
|
Peihao LOKE
UOB Kay Hian
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https://research.uobkayhian.com/
2020-06-01
SGX Stock
Analyst Report
2.600
SAME
2.600
2.850
SAME
2.850
1.160
SAME
1.160
0.620
SAME
0.620
1.300
SAME
1.300
