Singapore REITs - Maybank Kim Eng 2020-08-25: Staying With The Winners

SGinvestors.io

MAPLETREE LOGISTICS TRUST (SGX:M44U) MAPLETREE INDUSTRIAL TRUST (SGX:ME8U) ASCENDAS REAL ESTATE INV TRUST (SGX:A17U)

Singapore REITs - Staying With The Winners

Industrial REITs a bright spot; raising DPUs, target prices

• Industrial REITs have outperformed peers YTD and continue to present stronger fundamentals into 2H20. DPU visibility is improving with resilient occupancies underpinned by leasing momentum and low supply. Balance sheets remain strong, with acquisitions in business parks, data centres and logistics assets likely to gain pace in the coming quarters.
• Structural demand tailwinds should continue to buoy valuations, while liquidity for our preferred large-cap names could see added support, as trading in SGX’s REIT futures gain traction.
• We revised DPUs and raised target prices for Ascendas REIT (SGX:A17U), Mapletree Industrial Trust (SGX:ME8U) and Mapletree Logistics Trust (SGX:M44U) by 3-8%. They remain our top sector BUYs.

Resilient occupancies, rental recovery

• DPUs for industrial REITs were relatively resilient in 1H20 amid the pandemic; visibility improved as vacancies compressed further on the back of strong leasing, especially for logistics and business park space.
• Logistics occupancies improved q-o-q and y-o-y for Mapletree Logistics Trust, ARA LOGOS Logistics Trust (SGX:K2LU) and AIMS APAC REIT (SGX:O5RU), and remain tight at 94-99%. This, and a subdued supply pipeline, should support rental growth into 2021.
• Ascendas REIT saw a +4.3% rental reversion in Singapore with its business parks and integrated development stronger at +16.3% and +19.8% y-o-y. Against tight supply for new business park space, its properties remain under-rented and should see positive reversion in 2H.

Balance sheets strong, acquisitions to gain pace

• The regulatory leverage limit was raised from 45% to 50% in Apr 2020, but acquisition activity has been slow. Sector balance sheets are strong, with average leverage at 36.9%, and debt headroom at 13-50% of AUMs. Industrial REITs’ valuations have meanwhile surpassed pre-COVID levels.
• Low cost of equity particularly for the larger REITs, and borrowing costs, should extend support for DPU-accretive deal opportunities.
• We expect Ascendas REIT, Mapletree Industrial Trust and Mapletree Logistics Trust to push further on overseas diversification, backed by their visible sponsor pipelines.

Trends reinforced, further re-rating for Mapletree Industrial Trust, Mapletree Logistics Trust

• We see expansions by technology sector tenancies supporting near-term leasing demand for office, business park and high-specs industrial space.
• Structural trends accelerated by the pandemic:
  • wider e-commerce adoption,
  • supply chain diversification, and
  • increased remote working,
  will continue to skew demand towards prime logistics and data centre properties, and a further tightening of yields for Mapletree Industrial Trust and Mapletree Logistics Trust in line with their global peers.
• We continue to like Ascendas REIT (SGX:A17U) for its scale and trading liquidity as the largest S-REIT, and its concentrated Singapore business parks/high-specs portfolio. We expect rental reversions to remain strong, especially in Singapore, to support its DPU recovery. Its strong balance sheet at 36.1% leverage suggest DPU upside from its sponsor’s Singapore business park deal pipeline and further overseas diversification. Our DDM-based TP assumes COE of 6.0% and LTG of 2.0%.
  • See Ascendas REIT Share Price; Ascendas REIT Target Price; Ascendas REIT Analyst Reports; Ascendas REIT Dividend History; Ascendas REIT Announcements; Ascendas REIT Latest News.
• We continue to like Mapletree Industrial Trust (SGX:ME8U) for its positive growth fundamentals and more resilient portfolio - DPU visibility has been strengthened by its rising hi-tech asset investments and overseas diversification. Its strong balance sheet and SGD1.5-2.2b debt headroom should provide DPU upside from its sponsor’s US data centre deal pipeline. Our DDM-based TP assumes COE of 5.6% and LTG of 2.0%.
  • 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.
• We continue to like Mapletree Logistics Trust (SGX:M44U) for its growing APAC logistics AUM, which positions it well to capture the sector’s multiple structural growth themes – rising e-commerce, demand and supply chain diversification - which have been accelerated by the COVID-19 pandemic. Our DDM-based TP assumes COE of 5.4% and LTG of 2.0%.
  • See Mapletree Logistics Trust Share Price; Mapletree Logistics Trust Target Price; Mapletree Logistics Trust Analyst Reports; Mapletree Logistics Trust Dividend History; Mapletree Logistics Trust Announcements; Mapletree Logistics Trust Latest News.
• See PDF report attached below for complete analysis.

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-08-25

SGX Stock Analyst Report BUY MAINTAIN BUY 2.40 UP 2.250

BUY MAINTAIN BUY 3.40 UP 3.300

BUY MAINTAIN BUY 4.00 UP 3.700