KEPPEL REIT (SGX:K71U)
SUNTEC REAL ESTATE INV TRUST (SGX:T82U)
ASCENDAS REAL ESTATE INV TRUST (SGX:A17U)
Singapore REITs - From Delta To Alpha
Making headway into new economy
- S-REITs have lagged the market’s year-to-date recovery despite improving fundamentals. The sector now trades at 290bps above the SG 10-year, and offers ~9% DPU CAGR from 2020-22E.
- Industrial REITs remain our preferred exposure given their resilient DPUs, stronger AUM profiles, and multiple catalysts.
- Office REITs have pulled back to offer a better risk-reward amid recovering Grade A rents, further overseas diversification, and Singapore’s clearer reopening pace. The push into new economy and longer WALE AUMs will underpin DPU visibility, while sound balance sheets and low interest rates should support acquisition growth upside.
- Ascendas REIT (SGX:A17U), CapitaLand Integrated Commercial Trust (SGX:C38U), Mapletree Commercial Trust (SGX:N2IU), Mapletree Industrial Trust (SGX:ME8U) and Frasers Centrepoint Trust (SGX:J69U) remain our top BUYs.
Multiple catalysts for industrial names
- We expect acquisitions to gain traction, as the industrial REITs move past resilient DPUs in 1H21, and grow their business park, data centre and logistics AUMs. Redevelopment opportunities have arisen amid tightening cap rates, and we estimate ~6-7% yield-on-cost for Ascendas REIT (SGX:A17U) on its proposed 1 Science Park Drive project. Transparency has improved with the recent interims, and rents could bottom out by end-2021.
- ESR Cayman’s proposed acquisition of ARA to gain scale in new economy AUM could spur interest in related small-cap REIT names given their overlapping asset portfolios and room to lower average financing costs at 3.1% vs 2.1% for their large-cap peers.
Offices a play into reopening recovery
- Office REITs saw weak leasing in 2Q21, from the tightened COVID-19 measures in May, but demand is turning a corner, and the sector offers a cyclical opportunity as staff return to workplaces. Grade A office rents will likely be flat this year, against our initial -5% estimate.
- Keppel REIT (SGX:K71U) has pulled back following Keppel Corp (SGX:BN4)’s proposed SPH (SGX:T39) privatization announcement, and while tenant-downsizing risk remains, its DPUs are cushioned by low supply and recovering rents, with its low ~37% gearing supporting deal catalysts. Valuations are undemanding at 5-6% dividend yield, 15-35% below book and against 3.25-3.75% cap rates.
Hospitality in slow transition, RevPAR visibility low
- Occupancies at 60-78% across the REIT portfolios, are artificially supported by government isolation demand, and should ease in 4Q21, while RevPAR recovery remains slow into 2022. Capital is eyeing long-stay rental housing and purpose-built student accommodation (PBSA) assets, which will figure more significantly in AUMs.
- Ascott Residence Trust (SGX:HMN) remains best placed on execution, given its diversified portfolio, strong balance sheet, and > S$300m in residual divestment gains to support capital distributions amid slower DPU growth.
- See report attached for more data charts and also the latest S-REITs peer comparison table.
Chua Su Tye
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2021-08-18
SGX Stock
Analyst Report
1.00
UP
0.950
1.30
UP
1.250
3.650
SAME
3.650
