PRIME US REIT (SGX:OXMU)
ASCENDAS REAL ESTATE INV TRUST (SGX:A17U)
FRASERS CENTREPOINT TRUST (SGX:J69U)
ASCOTT RESIDENCE TRUST (SGX:HMN)
Singapore REITs Monthly - Positioning For The Future
- Stock markets declined m-o-m, as stocks fought to shake off the Omicron jitters. The FTSE S-REIT Index continued to lag the STI and FTSE Real Estate developer index, down 3.0ppts m-o-m. All sub-sectors were in the red, except for Healthcare (+3.5ppt), with Hospitality (- 6.6ppts) weighing down the index.
- The dividend yield spread of 262bps is -1.1SD of the 10-year average. The 3MSOR was up 20bps y-o-y, but remains below the 5-year and 10-year historical levels, supporting ~S$11.5bn in acquisition year-to-date.
- We remain OVERWEIGHT with preference on the Retail and Industrial sectors. Catalysts expected from pick-up in the economy and portfolio rebalancing. S-REITs under our coverage to deliver FY21e DPU yields of 4.0-8.7%.
- Top picks are Prime US REIT (SGX:OXMU) and Ascendas REIT (SGX:A17U).
S-REIT SECTOR ROUND-UP
- 2 new S-REITs made their debut on the Singapore Exchange, bringing the number of S-REITs to 41.
- Daiwa House Logistics Trust (SGX:DHLU) was listed on 26 November 2021 with an AUM of S$953mil. It comprises 14 logistic assets located in Japan.
- Data centre REIT, Digital Core REIT (SGX:DCRU), made its debut on 6 December 2021 with a portfolio of 10 data centres located in North America valued at US$1.4bn.
- S-REITs pressed on with portfolio rebalancing. ~S$2.9bn in acquisitions were announced since November 21, bringing the year-to-date value of acquisitions to ~S$11.5bn. Notable acquisitions include
- Mapletree Logistics Trust (SGX:M44U)'s S$1.4bn acquisition of 17 logistics assets in China, Vietnam and Japan,
- Manulife US REIT (SGX:BTOU)'s three office assets in Phoenix and Portland, USA, and
- CapitaLand Integrated Commercial Trust (SGX:C38U)’s maiden entry into Australia through the acquisition of two Grade A office buildings in Sydney valued at A$720mil.
- The latter comes hot on the heels of Keppel REIT (SGX:K71U)’s A$328mil acquisition of a Grade A office under development located in North Sydney.
Retail Sector
- The Oct 21 retail sales index (excluding motor vehicles) was its tightest at -1.6% compared with the respective month in 2019, partly attributed to the Computer & Telecommunications Equipment sector (+73.4% y-o-y), which recorded higher mobile phone sales due to new product launches. Eight out of 12 of the retail categories experienced y-o-y growth, with Watches & Jewellery and petrol service stations delivering significant y-o-y growth of 30.1% and 17.6% respectively.
- The F&B services index dipped 5.1% y-o-y due to the two pax dine-in restrictions in Oct 21. However, the raising of group size from two to five pax for dine-in and gatherings, which came into effect on 22 November 2021, should help catalyse F&B spending during the festive year-end period.
Hospitality Sector
- Nov 21 international visitor arrivals grew 72% m-o-m from 24k to 41k, the highest since the pandemic hit (Figure 12). This was largely attributed to the nine countries that were added to the vaccinated travel lane (VTL) on 19 October and 15 November. However, this represents a mere 2.7% of Nov 19’s arrivals. Outbound resident departures by air surpassed international arrivals for Oct 21, up 9.6% m-o-m to 45k. This represents 6.4% of Oct 19’s outbound residents travelling by air. This could be the start of waning staycation demand as Singaporeans revisit travel plans.
- Average RevPAR was 24.7% higher y-o-y, on the back of higher room rates and occupancy. The rerating followed the commencement of the VTL on 8 September 2021, which began with Germany and Brunei. On a m-o-m basis, average RevPAR marginally improved – a 14.2% improvement in room rates erased a marginal 0.4ppt decline in occupancy.
- Singapore and the nine respective countries continued with the VTL despite the emergence of the Omicron variant in November. We think this reiterates the government’s stance on the virus becoming endemic and confidence in protocols in place to detect and contain the infections. Hospitality recovery remains fragile, threatened by the new mutation of the virus and additional pre-and post-travel testing and isolation requirements.
INVESTMENT RECOMMENDATIONS: Maintain OVERWEIGHT on S-REITs
- S-REITs have been active on the transaction front. Portfolio reconstitution should strengthen portfolios, while disbursements of divestment gains and contributions from acquisitions could help DPUs recover faster. Several REITs are exploring redevelopment and AEIs due to lower opportunity costs in this softer leasing environment. These efforts should result in faster later-period DPU growth. S-REITs under our coverage are expected to deliver 4.0-8.7% FY21e DPU yields.
- Bloomberg consensus forecasts that 10YSGS yields will remain below 2.0% from 2021 to 2022, before crossing the 2.0% level in 2023. S-REITs’ DPUs should outpace interest-rate growth, providing upside for S-REITs.
Sub-sector preferences: Industrial and Retail
- We believe the industrial sub-sector will be resilient. Industrial REITs have been the most active in acquisitions, owing to early recovery in their share prices. We think industrial REITs will continue to lead the pack in acquisitions and redevelopment/AEIs for the rest of 2021.
- Continued border closures and acclimatisation to online shopping have returned the RSI to pre-pandemic levels. Barring a second circuit breaker and closure of malls, we think the earnings impact on retail REITs will be marginal. Vacancy risks may be mitigated by supportive supply conditions.
Retail REITs (OVERWEIGHT).
- Suburban malls should stay resilient regardless of the default work mode. Suburban malls are typically located near household catchments and transportation nodes. Higher daytime populations from work-from-home arrangements should be converted to transient footfall even when work-from-office resumes, spurring incidental spending. Central malls could receive a lift when international borders eventually open. Dominant central and suburban malls which are well-located and well-managed will likely be prioritised amid retail consolidation and expansion.
- We prefer Frasers Centrepoint Trust (SGX:J69U) for its exposure to resilient, necessity-driven spending at suburban malls and growth in suburban catchments.
Office REITs (NEUTRAL).
- Lacklustre demand and downsizing will likely result in office oversupply in the near term, despite mitigation from office stock taken offline for redevelopment. Rents could remain under pressure. Still, the long-term outlook of the office market is optimistic as Singapore remains one of the top cities for the location of regional headquarters. This is attributable to its political and operational stability, business-friendly policies and educated workforce.
- Prefer Prime US REIT (SGX:OXMU) for its higher tenant exposure to New Economy STEM/TAMI sectors.
Industrial REITs (OVERWEIGHT).
- The outlook for data centres, hi-spec and business parks remains favourable. These asset classes are supported by a growing technology sector and low supply under construction. Warehouses have been benefitting from higher demand from logistics players, backed by e-commerce growth. Leasing of light industrial factory space may be muted as global demand is still on the mend. The outlook for factory assets remains challenging given considerable new supply.
- Our top pick is Ascendas REIT (SGX:A17U) for its diversified portfolio, which is positioned to capture demand from New Economy sectors.
Hospitality REITs (NEUTRAL).
- The hospitality sector faces a long road to recovery. We estimate that the industry may only return to pre-COVID levels in 2023-24, in line with the Singapore Tourism Board’s 3-5-year recovery timeline. With one of the highest vaccination rates globally, Singapore could be one of the first to benefit from travel channels as countries progress in their vaccination programmes. Economies with sizeable domestic demand such as China, the UK, France, Australia and the US will be the first to recover, in our view. While business travel is likely to be less frequent, as companies hold business meetings virtually to save costs, some MICE demand is expected to return. This is because we think certain aspects of business engagement and networking cannot be replicated by virtual meetings.
- We prefer Ascott Residence Trust (SGX:HMN) as we expect it to make a faster recovery from its 74% exposure to countries with large domestic markets and growth in stable, long-stay assets.
- We are ceasing coverage on IREIT Global (SGX:UD1U) and Dasin Retail Trust (SGX:CEDU) with immediate effect due to reallocation of resources.
Natalie Ong
Phillip Securities Research
|
https://www.stocksbnb.com/
2021-12-17
SGX Stock
Analyst Report
0.940
SAME
0.940
3.650
SAME
3.650
2.830
SAME
2.830
1.190
SAME
1.190
