CAPITALAND MALL TRUST (SGX:C38U)
FRASERS CENTREPOINT TRUST (SGX:J69U)
FAR EAST HOSPITALITY TRUST (SGX:Q5T)
ASCOTT RESIDENCE TRUST (SGX:HMN)
KEPPEL REIT (SGX:K71U)
S-REITs Weekly - Corrections After 3 Consecutive Weeks Of Strong Gains
- S-REITs succumbed to corrections on Thursday and Friday after three consecutive weeks of strong gains. FOMC participants expect US unemployment rate to hit 9.3% by end-20, and then improve to 6.5% by end-21 and 5.5% by end-22. To help displaced American workers return to the labour force, the Fed is expected to keep Fed Funds Rate near zero till 2022.
- BUY
- CapitaLand Mall Trust (SGX:C38U) (Target Price: S$2.60),
- Frasers Centrepoint Trust (SGX:J69U) (Target Price: S$2.85),
- Ascott Residence Trust (SGX:HMN) (Target Price: S$1.16),
- Far East Hospitality Trust (SGX:Q5T) (Target Price: S$0.62) and
- Keppel REIT (SGX:K71U) (Target Price: S$1.30).
UOBKH S-REIT Index retraced 4.1% to 249.0 last week (8-Jun to 12-Jun).
- S-REITs succumbed to correction on Thursday and Friday after three consecutive weeks of strong gains. Federal Reserve (FED) gave a grim assessment of the US economy, despite the surprise gains of 2.5m jobs in May. On average, FOMC participants expect US real GDP to shrink 6.5% in 2020 and unemployment rate to hit 9.3% by end-2020.
- Top outperformer. Mapletree North Asia Commercial Trust (SGX:RW0U) gained 1.1% last week, the third consecutive week of gains, on relief that the US did not revoke Hong Kong’s special trade privileges.
- Top underperformer: The correction was broad-based. Manulife US REIT's share price dropped by 8.5%. Retail-related REITs Suntec REIT (SGX:T82U), Frasers Centrepoint Trust (SGX:J69U), Lendlease REIT (SGX:JYEU) and Mapletree Commercial Trust (SGX:N2IU) corrected 8.1%, 7.4%, 4.9% and 3.8% respectively. Industrial / logistics REITs Mapletree Logistics Trust (SGX:M44U) and Ascendas REIT (SGX:A17U) lost 5.0% and 4.3%.
- See
SPOTLIGHT – MONETARY POLICY
- Jerome Powell: “We're not thinking about raising rates. We're not even thinking about, thinking about raising rates.”
The Fed continues to provide accommodation.
- The Fed maintained the target range for the Fed funds rate at 0.00-0.25% after the FOMC meeting on 9-10 June. It will increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace (US$80b in treasury bonds and US$40b in mortgage securities).
Grim outlook for the job market.
- The US economy went from the lowest unemployment in 50 years (3.5% in February) to the highest unemployment in 90 years (14.7% in April) over a period of two months. An estimated 25m jobs were displaced during the COVID-19 pandemic, wiping out all the gains since the Global Financial Crisis in 2008.
- Some economists believe that about half of the laid-off workers are unlikely to return to their former employers. The unemployment rate was 13.3% in May 20. If we include large number of workers who reported themselves as employed but absent from their jobs, the unemployment rate would be higher by about 3ppt at 16.3%.
- On average, FOMC participants expect US unemployment rate to hit 9.3% by end-20, 6.5% by end-21 and 5.5% by end-22.
Zero interest rates for two and a half years.
- The Fed wants to provide an environment in which displaced workers have the best chance to go back to their old jobs or find new ones. All 17 FOMC participants (100%) expect to hold Fed Funds Rates near zero in 2021 and 15 of them (88%) projected Fed Funds Rates near zero till 2022. This means another two and a half years of zero interest rates.
Assurance of dovish disposition positive for S-REITs.
- The Fed’s intention to gradually nurse the labour market back to health entails many years of policy accommodation. Investors’ interest will be kept fixated on yield plays, such as S-REITs.
Our top-5 picks for S-REITs are as follows:
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 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 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.
- Ascott Residence Trust will be included in FTSE EPRA NAREIT Global Real Estate Index (Global Developed) from 22 Jun 20.
- 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 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.
Jonathan Koh CFA
UOB Kay Hian Research
|
Loke Peihao
UOB Kay Hian
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https://research.uobkayhian.com/
2020-06-15
SGX Stock
Analyst Report
2.600
SAME
2.600
2.850
SAME
2.850
0.620
SAME
0.620
1.160
SAME
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SAME
1.300
