Singapore REITs - Maybank Kim Eng 2021-03-17: Fast-Forward, Not Rewind

SGinvestors.io

ASCENDAS REAL ESTATE INV TRUST (SGX:A17U) KEPPEL REIT (SGX:K71U) MAPLETREE INDUSTRIAL TRUST (SGX:ME8U) MAPLETREE LOGISTICS TRUST (SGX:M44U) MANULIFE US REIT (SGX:BTOU) SUNTEC REAL ESTATE INV TRUST (SGX:T82U)

Singapore REITs - Fast-Forward, Not Rewind

Volatility ahead, prefer Retail REITs > Industrial REITs > Office REITs > Hospitality REITs

• S-REITs share price have retreated by 5% since Jan, underperforming the market by 9%, against a backdrop of rising inflation expectations and a steepening yield curve, with valuations likely to remain under pressure given heightened volatility.
• We stay positive on fundamentals, as the sector is past its rent relief cycle, while overseas diversification has strengthened DPU visibility.
• Retail names have jumped 19-23% since Nov 2020, with valuations backed by 8-20% DPU growth and 5-7% FY21 yields.
• We see favourable risk-reward for industrial REITs, with acquisition growth levers set to come back in play.
• Our top BUYs are
  • Ascendas REIT (SGX:A17U),
  • CapitaLand Integrated Commercial Trust (SGX:C38U),
  • Mapletree Commercial Trust (SGX:N2IU), and
  • Frasers Centrepoint Trust (SGX:J69U).

Revisiting estimates and target price of S-REITs, working in sensitivities

• We revisited estimates as we move past 2020 numbers and factor in recent acquisitions that were announced post-results. Our FY21 DPUs forecast were adjusted by -4% to +5%.
• While long term interest rates have lately risen, our sensitivity analysis suggest that every 50bps change in refinancing costs would impact our DPUs by 1-6%. Our DDM valuation methodology stays consistent across the sector with changes to our target prices (-10% to +6%) reflecting adjustments to our COE assumptions.
  • Ascendas REIT (SGX:A17U): Target price changed from S$4.00 to S$3.60.
  • Keppel REIT (SGX:K71U): Target price changed from S$0.90 to S$0.95.
  • Mapletree Industrial Trust (SGX:ME8U): Target price changed from S$3.40 to S$3.10.
  • Mapletree Logistics Trust (SGX:M44U): Target price changed from S$2.40 to S$2.20.
  • Manulife US REIT (SGX:BTOU): Target price changed from US$1.10 to US$1.00.
  • Suntec REIT (SGX:T82U): Target price changed from S$1.20 to S$1.25.
• Our sensitivity analysis suggests that every 50bps change in our risk-free rate assumption leads to a 3-12% change in valuations. See report attached below for details.

DPUs to accelerate at a 2-year CAGR of 12%

• We reiterate our positive view on industrial REITs; they have on average returned all their gains in 2020, but are set to deliver positive DPU growth and accretive acquisitions as these pick up pace from 2Q.
• We forecast 8-20% 2-year DPU CAGR for retail REITs, implying FY21 dividend yields of 5-7%.
• With 11-34% appreciation since Nov 2020, risk-reward for hospitality REITs is less compelling. Progress on vaccine rollout and progressive border reopening towards year-end are catalysts, but RevPAR visibility is poor, while the street and us have penciled in ~25% RevPAR growth in 2021 and 15% in 2022.
• We remain negative on office REITs given tenant downsizing risk, exacerbated by increasing remote work practices.

Not a replay of 2013 taper tantrums

• While a steepening yield curve and inflation pressures have reignited taper tantrum fears (see ASEAN Economics 5 Mar 2021 - Capital Flows & Taper Tantrums), we expect sector valuations to be more resilient. The supply outlook is more favourable (recall that industrial saw a surge in 2014-17), while demand drivers remain intact.
• S-REITs' balance sheets are strong, especially with AUMs having expanded from acquisitions, with sector gearing low at 37.2% as of end-Dec 2020. See peer comparison table in report attached below.
• S-REITs now have clearer growth mandates and opportunities, with the still low interest rate backdrop set to support further overseas diversification initiatives. Accretive acquisitions funded by debt could lift DPUs by 15% on average, assuming headroom is all-deployed.
• Continue to read the report attached for data charts, sensitivity analysis details, and summary of investments thesis, valuations & risks for the following S-REITs.
  • AIMS APAC REIT (SGX:O5RU),
  • ARA LOGOS Logistics Trust (SGX:K2LU),
  • Ascendas REIT (SGX:A17U),
  • Ascott Residence Trust (SGX:HMN),
  • CapitaLand Integrated Commercial Trust (SGX:C38U),
  • CDL Hospitality Trusts (SGX:J85),
  • Far East Hospitality Trust (SGX:Q5T),
  • Frasers Centrepoint Trust (SGX:J69U),
  • Frasers Hospitality Trust (SGX:ACV),
  • Keppel REIT (SGX:K71U),
  • Manulife US REIT (SGX:BTOU),
  • Mapletree Commercial Trust (SGX:N2IU),
  • Mapletree Industrial Trust (SGX:ME8U),
  • Mapletree Logistics Trust (SGX:M44U),
  • Prime US REIT (SGX:OXMU),
  • Sasseur REIT (SGX:CRPU),
  • SPH REIT (SGX:SK6U),
  • Suntec REIT (SGX:T82U).

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2021-03-17

SGX Stock Analyst Report BUY MAINTAIN BUY 3.600 DOWN 4.00

SELL MAINTAIN SELL 0.95 UP 0.900

BUY MAINTAIN BUY 3.100 DOWN 3.400

BUY MAINTAIN BUY 2.200 DOWN 2.400

BUY MAINTAIN BUY 1.00 DOWN 1.100

SELL MAINTAIN SELL 1.250 UP 1.200