Global Real Estate Sector - OCBC Investment 2021-06-16: Disrupt Or Be Disrupted

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KEPPEL DC REIT (SGX:AJBU) MAPLETREE LOGISTICS TRUST (SGX:M44U) ASCENDAS REAL ESTATE INV TRUST (SGX:A17U) FRASERS LOGISTICS & COMMERCIAL TRUST (SGX:BUOU) CAPITALAND INTEGRATED COMM TR (SGX:C38U)

Global Real Estate Sector - Disrupt Or Be Disrupted

• Disruption from COVID-19 pandemic has caused challenges but also created opportunities.
• Increased digitalisation, return of co-working spaces and omni-channel strategies are key trends disrupting the real estate sector.
• Adaptability is key to survival.

COVID-19 pandemic has caused challenges but also created opportunities.

• The dampening effects of the COVID-19 pandemic have created challenges for the real estate sector, some of which are structural in nature. However, on the other hand, opportunities have also emerged and provided tailwinds for others. Increased digitalisation and e-commerce penetration rates have boosted demand for data centres and modern logistics properties. We believe this bodes well for Keppel DC REIT (SGX:AJBU) [BUY; Fair value estimate: S$3.32], and to a smaller extent Ascendas REIT (SGX:A17U) [BUY; Fair value estimate: S$3.84].
• Within the logistics space, we like Frasers Logistics & Commercial Trust (SGX:BUOU) [BUY; Fair value estimate: S$1.62] and Mapletree Logistics Trust (SGX:M44U) [HOLD; Fair value estimate: S$2.10], with the former having logistics properties in Australia, Germany, and the Netherlands, and the latter being a pure play logistics REIT with properties in countries such as Singapore, China, Vietnam, Hong Kong and Australia.

Work-from-home disrupts office sector

• The office sector faces disruption from work-from-home (WFH) trends, with co-working spaces seemingly making a comeback given the need for flexibility, although this recovery is still fraught with uncertainties.
• We would look out for real estate players who are able to offer flexible workspace solutions and speed to market in their offerings, including the leasing of space to co-working operators while keeping the exposure manageable. For example, CapitaLand (SGX:C31) [HOLD; Fair value estimate: S$4.03] has responded to these changing needs by offering tenants a “core-flex” solution.

E-commerce boosted demand for logistics assets

• The rise in e-commerce penetration rates may have boosted demand for logistics assets, but it has also posed structural challenges for the retail sector.
• That said, we believe that brick and mortar retail and online retail need not be a zero-sum game, as an omnichannel strategy can enhance a customer’s shopping experience in both an offline and digital format. CapitaLand (SGX:C31), CapitaLand Integrated Commercial Trust (SGX:C38U) [BUY; Fair value estimate: S$2.51], Frasers Centrepoint Trust (SGX:J69U) [BUY; Fair value estimate: S$2.78] and Simon Property Group (SPG US) [HOLD; Fair value estimate: US$149] are names which we believe are adapting to stay relevant.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2021-06-16

SGX Stock Analyst Report BUY MAINTAIN BUY 3.320 SAME 3.320

HOLD MAINTAIN HOLD 2.100 SAME 2.100

BUY MAINTAIN BUY 3.840 SAME 3.840

BUY MAINTAIN BUY 1.620 SAME 1.620

BUY MAINTAIN BUY 2.51 SAME 2.51