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Singapore REITs - Maybank Kim Eng 2021-06-14: Good Yield Hunting

Singapore REITs - Maybank Kim Eng Research | SGinvestors.io ASCENDAS REAL ESTATE INV TRUST (SGX:A17U) CAPITALAND INTEGRATED COMM TR (SGX:C38U) FRASERS CENTREPOINT TRUST (SGX:J69U) MAPLETREE COMMERCIAL TRUST (SGX:N2IU) SASSEUR REIT (SGX:CRPU) PRIME US REIT (SGX:OXMU) MANULIFE US REIT (SGX:BTOU)

Singapore REITs - Good Yield Hunting


Sector stands out as investors eye yield




Industrial rents bottoming out, deal momentum up

  • Industrial REITs were the most aggressive in raising new equity or perps over the past 12 months and made up ~60% of a total S$7.6b raised, to fund acquisitions. DPU uplift is not yet fully factored into estimates, as year-to-date deals for Ascendas REIT (SGX:A17U) and Mapletree Industrial Trust (SGX:ME8U) will be completed after their upcoming EGMs, while they are trading at their recent placement valuations. See the summary on S-REITs’ fund raising and acquisitions in the past 12 months in Fig1 of report attached below.
  • Rents have further appreciated by 0.6% q-o-q in 1Q21, from +0.3% q-o-q in 4Q20, in line with the stronger GDP recovery. Vacancies have tightened for warehouse space, which will lead sector recovery. We expect the REITs to deliver DPU growth and for accretive acquisitions to pick up pace into the coming quarters.


Reopening plays drive stronger 2H21 DPU recovery

  • We continue to back the reopening plays, as the falling Covid case numbers since heightened measures introduced on 14 May, have afforded an ease in restrictions, including larger group sizes from 2 to 5, and resumption of dining-in from 21 Jun. We expect S-REIT DPUs to rise at a 2-year CAGR of ~6%, led by a +8-20% jump for retail REITs. They have not disclosed rental waivers (to offset weaker tenant sales), but we see limited impact to DPU at 0.5-1.5%.
  • Retail REITs are down ~1-5% since end-Apr, and imply attractive FY21 dividend yields of 5-7%.


"Yield + Growth" picks should continue to deliver

  • We flag 3 small-cap BUYs – Manulife US REIT (SGX:BTOU), Prime US REIT (SGX:OXMU) and Sasseur REIT (SGX:CRPU), that fit well into an S-REIT ‘yield + growth’ screen, as their total returns at 12.0-13.0%, are above the sector average; this premium is more significant if we exclude hospitality names (as average total return falls to 9.0%), given poor RevPAR visibility into 2022.
  • We see tailwinds for US office REITs from improving market fundamentals, declining new infections and higher vaccination rates, with DPUs cushioned by low FY21-22 lease expiries, supported by well-placed assets and quality tenancies.


S-REIT Top Picks


Ascendas REIT (SGX:A17U)

  • Ascendas REIT's diversified S$15.1b portfolio and resilient operating metrics stand out as key strengths. Management has guided for a low single-digit positive reversion for 2021, and we maintain an optimistic outlook for its rental growth, which is likely to be led by its business parks, suburban office and logistics properties, which now contribute 79% to its AUM.
  • Fundamentals are strong, backed by its scale, rising DPU visibility, and upside growth levers from a strong balance sheet. Following the recent completion of its European data centre deal, we believe Ascendas REIT could revisit its sponsor’s S$1b Singapore pipeline at the Science Park in the near to medium term.
  • Our target price for Ascendas REIT is based on DDM valuation with a COE of 6.3% and long-term growth assumption of 2.0%.
  • See Ascendas REIT Share Price; Ascendas REIT Target Price.
  • Risks
    1. Weaker-than-expected occupancy and rental reversion due to prolonged macroeconomic uncertainties,
    2. Higher-than-expected volatility from the overseas portfolio, now a larger proportion of AUM,
    3. Overpaying for acquisitions resulting in lower DPU-accretion.

CapitaLand Integrated Commercial Trust (SGX:C38U)

  • CapitaLand Integrated Commercial Trust is now past the peak of rental waivers and should benefit from the completion of various office AEIs and lower borrowing costs. We expect negative rental reversions to moderate as social-distancing measures continue to ease, with retail recovery gaining traction in 2H21. We see near-term catalyst from DPU recovery in 2021 and medium-term earnings upside as it leverages added development capacities in value-accretive AEIs and redevelopment opportunities.
  • Our target price for CapitaLand Integrated Commercial Trust is based on DDM valuation with a COE of 5.9% and long-term growth assumption of 1.5%. See CapitaLand Integrated Commercial Trust Share Price; CapitaLand Integrated Commercial Trust Target Price.
  • Risks:
    1. Slower-than-expected sales recovery resulting in weaker retail occupancies and rental reversions,
    2. Headwinds from greater flexible work arrangements eroding demand for office space resulting in higher vacancies and larger-than-expected decline in rents,
    3. Potential pre-termination or renegotiation of long-term leases contributing to weaker portfolio tenant retention rate.

Frasers Centrepoint Trust (SGX:J69U)

  • Frasers Centrepoint Trust’s 1H21 DPU jumped ~28% y-o-y following the PGIM Asia Retail Fund (ARF) acquisition on 27 Oct 2020, and underpinned by stable portfolio occupancy. The ARF deal has helped to double its AUM to S$6.4b, and reinforced its market share in the more resilient suburban malls space. We see rent reversions improving on the back of tenant sales traction in 2H21.
  • Proactive capital recycling efforts with the divestments of Anchorpoint and Yew Tee Point have helped strengthened its balance sheet.
  • Our target price for Frasers Centrepoint Trust is based on DDM valuation with a COE of 6.2% and long-term growth assumption of 2.0%. See Frasers Centrepoint Trust Share Price; Frasers Centrepoint Trust Target Price.
  • Risks:
    1. Slower-than-expected sales recovery resulting in weaker occupancies and rental reversions,
    2. Weaker demand for retail space due to e-commerce competition translating into lower rentals for its properties,
    3. Overpaying for acquisitions resulting in lower DPU-accretion.

Mapletree Commercial Trust (SGX:N2IU)

  • Mapletree Commercial Trust’s VivoCity revenue and NPI jumped 15.9% y-o-y and 15.5% y-o-y in its 4Q21, driven by recovery in both shopper traffic and tenant sales. The latter has returned to more than 86% of pre-Covid levels (same as 3Q21), from 78.0% in 2Q21 and 36.6% in 1Q21, and ahead of ~74% recovery in shopper traffic. Its performance however, would have trailed Frasers Centrepoint Trust (with tenant sales at ~110%) and CapitaLand Integrated Commercial Trust (~103%), due to limitations on large-scale sales events, but with upside seen from further easing in capacities in FY22.
  • Contributions from its office and business park assets have risen and should continue to support DPU visibility. Its balance sheet remains strong with valuations undemanding at 5.0% FY22E yield on the back of recovering DPU.
  • Our target price for Mapletree Commercial Trust is based on DDM valuation with a COE of 5.7% and long-term growth assumption of 2.0%. See Mapletree Commercial Trust Share Price; Mapletree Commercial Trust Target Price.
  • Risks:
    1. Slower-than-expected sales recovery resulting in weaker retail occupancies and rental reversions,
    2. Headwinds from greater flexible work arrangements eroding demand for office space resulting in higher vacancies and larger-than-expected decline in rents
    3. Potential pre-termination or renegotiation of long-term leases contributing to weaker portfolio tenant retention rate.

Manulife US REIT (SGX:BTOU)

  • Manulife US REIT saw strong leasing momentum in 1Q21 at 5.8% of its NLA (up 4.6x q-o-q and 1.8x y-o-y), driven by renewals. We see tailwinds from improving market fundamentals, with FY21-22 DPUs to be cushioned by its low lease expiries, strong assets and quality tenancies.
  • Manulife US REIT's valuations are undemanding at 8.0% FY21 yield (as management maintains a 100% payout), backed by high DPU visibility with stable income growth and low leasing risks, and upside as it returns to acquisition mode.
  • With a US$360m debt headroom, management is likely eyeing larger deals (from third parties or through JVs), as it pushes into US ‘magnet cities’, to boost its ‘high-growth tenancies’ from 10% now to ~20%.
  • Our target price for Manulife US REIT is based on DDM valuation with a COE of 7.6% and long-term growth assumption of 2.0%. See Manulife US REIT Share Price; Manulife US REIT Target Price.
  • Risks:
    • Slower-than-expected pick-up in leasing demand for office space lowering occupancy,
    • Weaker-than-anticipated rental reversions,
    • Overpaying for acquisitions resulting in lower DPU-accretion.

Prime US REIT (SGX:OXMU)

  • Prime US REIT has continued to deliver strong positive rental reversions, DPUs ahead of its IPO projections, and a maiden acquisition of Park Tower in Feb 2020 at 6.9% NPI yield. Improving market fundamentals should drive demand recovery, with occupancies in our view, likely to bottom out in 2H21. DPU visibility remains high, supported by a 4.3-year WALE, strong tenancies, and +2.0% pa growth from its AUM, currently under-rented by 6.5%. We see catalysts from improving leasing activity into FY21, and upside from acquisitions, backed by its strong balance sheet.
  • Prime US REIT's valuations are compelling at 8+% FY21 DPU yield, with stronger operational performance and potential acquisitions as re-rating catalysts.
  • Our target price for Prime US REIT is based on DDM valuation with a COE of 8.3% and long-term growth assumption of 2.0%. See Prime US REIT Share Price; Prime US REIT Target Price.
  • Risks:
    1. Slower-than-expected pick-up in leasing demand for office space lowering occupancy,
    2. Weaker-than-anticipated rental reversions,
    3. Overpaying for acquisitions resulting in lower DPU- accretion.

Sasseur REIT (SGX:CRPU)

  • Sasseur REIT (SGX:CRPU) has continued to deliver stronger-than-expected results as sales recovery is gaining traction post-Covid. We see strong momentum into FY21 as occupancies improve from AEIs and tenant remixing efforts. Better-than-expected portfolio sales growth and upside from potential acquisitions, backed by a strong balance sheet with low 27.6% leverage and visible sponsor pipeline, are key re-rating catalysts.
  • Our target price is based on DDM valuation with a COE of 9.8% and long-term growth assumption of 3.0%. See Sasseur REIT Share Price; Sasseur REIT Target Price.
  • Risks:
    1. Slower-than-expected sales growth at its malls resulting in lower occupancies
    2. Stronger-than-expected new supply in core markets resulting in weaker-than-anticipated rental reversions,
    3. Overpaying for acquisitions resulting in lower DPU-accretion.

See the latest S-REITs peer comparison table in report attached below.






Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2021-06-14
SGX Stock Analyst Report BUY MAINTAIN BUY 3.650 SAME 3.650
BUY MAINTAIN BUY 2.550 SAME 2.550
BUY MAINTAIN BUY 2.900 SAME 2.900
BUY MAINTAIN BUY 2.350 SAME 2.350
BUY MAINTAIN BUY 1.050 SAME 1.050
BUY MAINTAIN BUY 1.100 SAME 1.100
BUY MAINTAIN BUY 1.000 SAME 1.000


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