ARA LOGOS LOGISTICS TRUST (SGX:K2LU)
FAR EAST HOSPITALITY TRUST (SGX:Q5T)
SUNTEC REAL ESTATE INV TRUST (SGX:T82U)
LENDLEASE GLOBAL COMMERCIAL REIT (SGX:JYEU)
UNITED HAMPSHIRE US REIT (SGX:ODBU)
Singapore REITs - Laggard S-REITs Have Potential To Outperform
- We have identified 5 laggard S-REITs overlooked by many investors and have the potential to outperform in 2021.
- Switch to laggard S-REITs. BUY ARA LOGOS Logistics Trust (SGX:K2LU), Far East Hospitality Trust (SGX:Q5T), Lendlease Global Commercial REIT (SGX:JYEU), Suntec REIT (SGX:T82U) and United Hampshire US REIT (SGX:ODBU), which provide attractive distribution yields of 7.4%, 6.4%, 6.2%, 6.3% and 9.5% respectively.
- Maintain OVERWEIGHT on S-REITs sector.
Blue-chip S-REITs have already outperformed.
- Blue-chip S-REITs have large market capitalisation, high trading liquidity and are included in major indices. They usually lead the market during the up-cycle. They are backed by branded sponsors, such as CapitaLand (SGX:C31) and Mapletree. Their positive attributes are well recognised and appreciated by investors and they trade at lower distribution yields and usually at significant premiums to NAV.
Laggard S-REITs could play catch-up.
- Laggard S-REITs follow blue-chip S-REITs after a time lag. They have smaller market capitalisation, lower trading liquidity and are usually not a component stock of major indices. They are underappreciated by many investors even though the quality of their real estate portfolios could be comparable to blue-chip S-REITs. Thus, they trade at higher distribution yields and larger discounts to NAV.
Latching on laggard S-REITs.
- We have identified 5 laggard S-REITs that have been overlooked by many investors. Their more attractive valuations could represent market inefficiency and opportunities for long-term investors.
- ARA LOGOS Logistics Trust (SGX:K2LU) (Target Price: S$0.85),
- Far East Hospitality Trust (SGX:Q5T) (Target Price: S$0.74),
- Lendlease Global Commercial REIT (SGX:JYEU) (Target Price: S$0.97),
- Suntec REIT (SGX:T82U) (Target Price: S$1.75) and
- United Hampshire US REIT (SGX:ODBU) (Target Price: US$0.92)
ARA LOGOS Logistics Trust (BUY/ Target Price: S$0.85)
- A new beginning with new sponsor LOGOS. ARA Asset Management has acquired majority control of LOGOS, which became its global logistics real estate arm. The acquisition pipeline is sizeable with an AUM of US$10.2b, of which more than half is located in Singapore, Australia and China.
- Tapping into sizeable sponsor pipeline. In its maiden acquisition post-reorganisation, ARA LOGOS Logistics Trust will expand by 28% in asset size and deepen its presence in Australia and the cold storage sector. LOGOS’s stake in ARA LOGOS Logistics Trust will increase from 10.7% to 12.4%. Ivanhoe Cambridge is a new significant unitholder with a stake of 8.8%.
- Diversified base of blue-chip tenants. ARA LOGOS Logistics Trust has a diversified tenant base, with its top 10 tenants accounting for 52.6% of gross rental income as of Sep 20. DHL, DB Schenker and FedEx, which are global leaders in 3PL, are among its Top 10 tenants.
- Our target price of S$0.85 is based on DDM (cost of equity: 6.75%, terminal growth: 1.0%). ARA LOGOS Logistics Trust provides attractive distribution yield of 7.5% and yield spread of 6.5% for both FY21 and FY22. Its P/NAV is lower at 1.12x compared to peers’ 1.50x.
- See ARA LOGOS Logistics Trust Share Price; ARA LOGOS Logistics Trust Target Price; ARA LOGOS Logistics Trust Analyst Reports; ARA LOGOS Logistics Trust Dividend History; ARA LOGOS Logistics Trust Announcements; ARA LOGOS Logistics Trust Latest News.
- See our recent re-initiation report for complete analysis: ARA LOGOS Logistics Trust - UOB Kay Hian 2021-01-06: New Platform Generates Growth & Yield Compression.
Far East Hospitality Trust (SGX:Q5T) (BUY/ Target Price: S$0.74)
- Downside protection from high fixed-rent component. 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 from hotels and serviced residences. Sponsor Far East Organisation (FEO), which owns 61% of Far East Hospitality Trust, has a strong balance sheet and impeccable track record.
- Aligned to unitholders’ interest. From 1 Jan 20, base fee will be reduced from 0.3% to 0.28% of deposited property. Performance fee would also be reduced from 4.0% of NPI to 4.0% of annual distributable amount. The reduction in management fees demonstrates that sponsor FEO is closely aligned to unitholders’ interest.
- Our target price of S$0.74 is based on DDM (cost of equity: 7.0%, terminal growth: 1.8%). Far East Hospitality Trust trades at an attractive P/NAV of 0.73x and distribution yield should improve to 6.4% in 2022F.
- 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.
Lendlease Global Commercial REIT (BUY/ Target Price: S$0.97)
- 313@Somerset – A magnet for youth. 313@Somerset has a unique positioning due to its youth orientation and prime location on top of Somerset MRT Station. Lendlease Global Commercial REIT will benefit from the recovery in visitor arrivals in 2022 as tourists account for 18% of shopper traffic at 313@Somerset. About 60% of leases by NLA have step-up structure with average rental escalation at 2.7%.
- Lendlease Global Commercial REIT will redevelop a car park at Grange Road, which will serve as a dedicated event space and draw more traffic to 313@Somerset.
- Sky Complex – Providing income stability. Sky Complex, located near Milano Rogoredo Railway and Metro Station, is on a triple net lease to Sky Italia until 15 May 2032 (WALE: 11.6 years).
- Potential acquisition pipeline from sponsor Lendlease Corporation. Sponsor Lendlease Group has a development pipeline worth A$113b and funds under management of A$36b as of Jun 20. Lendlease Group has a strong presence in Singapore through Jem (15.1% stake), Parkway Parade (10.2% stake) and Paya Lebar Quarter (30% stake).
- Our target price of S$0.97 is based on DDM (cost of equity: 6.0%, terminal growth: 1.0%).
- See Lendlease REIT Share Price; Lendlease REIT Target Price; Lendlease REIT Analyst Reports; Lendlease REIT Dividend History; Lendlease REIT Announcements; Lendlease REIT Latest News.
- See our initiation report for complete analysis: Lendlease Global Commercial REIT - UOB Kay Hian 2020-11-27: Benefitting From Recovery & Rejuvenation; Initiate Coverage With BUY.
Suntec REIT (BUY/ Target Price: S$1.75)
- Sustaining positive rental reversions. Suntec City Office is expected to maintain positive rental reversion as the average expiring rent is low at S$8.76psf pm for 2021. The return of employees to their offices and convention attendees will improve shopper traffic and tenant sales at Suntec City Mall.
- Development projects starting to contribute. 9 Penang Road in Singapore (30% stake), 477 Collins Street in Melbourne (50% stake) and 21 Harris Street in Sydney (100% stake) will make full-year contributions in 2021.
- Maiden acquisition in the UK. Suntec REIT's newly-acquired Nova Properties is located at Victoria (opposite the Victoria Station), the West End of London, and provides an NPI yield of 4.6% and long WALE of 11.1 years.
- Our target price of S$1.75 is based on DDM (cost of equity: 6.5%, terminal growth: 1.0%).
- See Suntec REIT Share Price; Suntec REIT Target Price; Suntec REIT Analyst Reports; Suntec REIT Dividend History; Suntec REIT Announcements; Suntec REIT Latest News.
United Hampshire US REIT (BUY/ Target Price: US$0.92)
- Grocery & necessity retail is e-commerce-resistant because last-mile logistics costs are prohibitive, particularly in suburban residential areas. More than 70% of base rental income is derived from tenants in businesses deemed essential. All tenants have opened for business since Sep 20.
- Quality tenants with long WALE. United Hampshire US REIT's top tenants include Walmart, BJ’s Wholesale Club, Ahold Delhaize, Lowe’s and Home Depot. Its long WALE of 8.4 years based on base rental income as of Sep 20.
- Move-in rates for self-storage facilities have recovered. United Hampshire US REIT’s self-storage facilities benefit from an outflow of population from New York City to suburban areas in New Jersey. The move-in rental growth for the self-storage sector has reversed sharply from a decline in 2Q20 to +12% y-o-y in Oct 20.
- Our target price of US$0.92 is based on DDM (cost of equity: 7.0%, terminal growth: 0.5%).
- See United Hampshire US REIT Share Price; United Hampshire US REIT Target Price; United Hampshire US REIT Analyst Reports; United Hampshire US REIT Dividend History; United Hampshire US REIT Announcements; United Hampshire US REIT Latest News.
- See our initiation report for complete analysis: United Hampshire US REIT - UOB Kay Hian 2020-12-16: Defensive Yield From Necessity Consumption Of Groceries & Self-Storage.
S-REITs sector catalysts
- Environment of persistently low interest rates, which keeps investors’ interest fixated on yield plays, such as S-REITs.
- Limited new supply for office, logistics and retail segments in 2021.
Jonathan KOH CFA
UOB Kay Hian Research
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Peihao LOKE
UOB Kay Hian
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https://research.uobkayhian.com/
2021-01-11
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Analyst Report
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