S-REITs Weekly - UOB Kay Hian 2020-06-30: 0.8% Correction As The US Experienced A Second Wave Of COVID-19 Infections.

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MAPLETREE INDUSTRIAL TRUST (SGX:ME8U)

S-REITs Weekly - 0.8% Correction As The US Experienced A Second Wave Of COVID-19 Infections.

• S-REITs corrected 0.8% w-o-w last week as the US experienced a second wave of COVID-19 infections. Daily new confirmed cases surged above 40,000 each on Thursday and Friday. States in the Southeast and Southwest, such as Texas, California and Florida, were badly affected.
• We take advantage of the weakness to accumulate
  • retail REIT CapitaLand Mall Trust (SGX:C38U) (Target Price: S$2.60), and Frasers Centrepoint Trust (SGX:J69U) (Target Price: S$2.85),
  • hospitality REIT Ascott Residence Trust (SGX:HMN) (Target Price: S$1.16), Far East Hospitality Trust (SGX:Q5T) (Target Price: S$0.62) and
  • office REIT Keppel REIT (SGX:K71U) (Target Price: S$1.30).
• Maintain OVERWEIGHT.

WHAT HAPPENED LAST WEEK

UOBKH S-REIT Index retraced 0.8% wow to 247.7 last week.

• New daily confirmed cases in the US surged above the 40,000 mark to 40,588 last Thursday and 44,602 last Friday (previous peak: 43,438 on 6 Apr 20). New cases surged across a number of states, particularly in the Southeast and Southwest (Texas, California and Florida). The surge is likely caused by the lifting of lockdown restrictions, increased testing and community transmission. The rate of hospitalisations has risen. Some hospitals are nearing full capacity in their intensive care units.

Top outperformers.

• Data centre REITs Keppel DC REIT (SGX:AJBU) and Mapletree Industrial Trust (SGX:ME8U) gained 4% and 2.8% respectively. See also recent SGX Market Update: S-REITs with Data Centres Amongst World’s Strongest in 2020 YTD.
• Defensive S-REITs United Hampshire US REIT (SGX:ODBU) (supermarkets and grocery stores) and Parkway Life REIT (SGX:C2PU) (hospitals and nursing homes) also gained 1.7% and 1.2% respectively.
• Industrial REITs Ascendas REIT (SGX:A17U) and Mapletree Logistics Trust (SGX:M44U) increased 1.6% and 1% respectively.

Top underperformers.

• Hospitality REITs and retail REITs suffered significant losses.
  • CDL Hospitality Trusts (SGX:J85), Ascott Residence Trust (SGX:HMN), Frasers Hospitality Trust (SGX:ACV) and Far East Hospitality Trust (SGX:Q5T) corrected 8%, 6.6%, 6% and 4.7% respectively.
  • Lendlease REIT (SGX:JYEU) and Starhill Global REIT (SGX:P40U) dropped 6.8% and 6.4% respectively.
• See
  • S-REITs Share Price Performance;
  • S-REITs Target Price & Rating.

SPOTLIGHT – MAPLETREE INDUSTRIAL TRUST (BUY/Target Price: S$3.08)

Further expansion in data centres.

• Mapletree Industrial Trust (SGX:ME8U) has proposed to acquire the remaining 60% interest in 14 data centres in the US from sponsor Mapletree Investments for US$210.9m (S$299.5m). The 14 data centres with a total NLA of 2.3m sf are primarily leased on a core-and-shell basis with triple net leases on a WALE of 4.6 years. Occupancy is high at 97.4%.

Exposure to resilient data centre segment expands 7.4ppt to 39% of AUM.

• North American data centres will account for a higher 32.5% share of Mapletree Industrial Trust's AUM, from 24.4%.
• Overall, the hi-tech buildings segment, which includes data centres, will expand 4.9ppt to account for 59.9% of AUM. The proportion of freehold properties (by land area) will also increase from 37.9% to 51.8% of the enlarged portfolio. Some 97.8% of MRDCT’s portfolio has annual rental escalations of 2% and above.

DPU and NAV accretive.

• The transaction is expected to boost pro-forma FY20 DPU by 3.4% to 12.66 S cents, and NAV per share by 3.7% to S$1.68.
• Mapletree Industrial Trust has completed a private placement of 146.4m new units to raise S$410m on 24 Jun 20. Some S$302.6m will be used to finance the proposed acquisition and S$100.9m to repay debt.
• See Mapletree Industrial Trust Share Price; Mapletree Industrial Trust Target Price; Mapletree Industrial Trust Analyst Reports; Mapletree Industrial Trust Dividend History; Mapletree Industrial Trust Announcements; Mapletree Industrial Trust Latest News.
• See also recent report: Mapletree Industrial Trust - UOB Kay Hian 2020-06-24: Zeroing In On Growth From Data Centre.

Jonathan KOH CFA UOB Kay Hian Research | Peihao LOKE UOB Kay Hian | https://research.uobkayhian.com/ 2020-06-30

SGX Stock Analyst Report BUY MAINTAIN BUY 3.08 SAME 3.08