Singapore REITs - UOB Kay Hian 2021-11-29: Omicron Variant ~ Reopening Delayed But Not Derailed

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ASCENDAS REAL ESTATE INV TRUST (SGX:A17U) FRASERS CENTREPOINT TRUST (SGX:J69U) FRASERS LOGISTICS & COMMERCIAL TRUST (SGX:BUOU) MAPLETREE INDUSTRIAL TRUST (SGX:ME8U)

Singapore REITs - Omicron Variant ~ Reopening Delayed But Not Derailed

• The new Omicron COVID-19 variant is more contagious. Existing vaccines still offer some protection but their efficacy is expected to be much reduced. Pharmaceutical companies are working on new vaccines and booster shots specifically designed to combat the new Omicron variant.
• Switch from Reopening Plays to New Economy Plays. BUY
  • Ascendas REIT (Target Price: S$3.83),
  • Frasers Logistics & Commercial Trust (Target Price: S$1.79),
  • Mapletree Industrial Trust (Target Price: S$3.72) and
  • Frasers Centrepoint Trust (Target Price: S$2.98).
• Maintain OVERWEIGHT.

A new highly-mutated new variant has emerged.

• Scientists first detected the new coronavirus variant B1.1.529 in South Africa in early November and it has since spread rapidly. The World Health Organisation (WHO) has designated the Omicron variant a variant of concern last Friday. The Omicron variant was also detected in nearby Botswana. In Europe, new cases were reported in Germany, Italy, Belgium and the Czech Republic. Within Asia, Hong Kong has reported two cases of Omicron variant infections.
• Omicron variant is more contagious. It has 50 mutations, including 30 on the spike protein. The mutations make the new variant more transmissible. They are also more likely to overcome our immune response triggered by existing vaccines and prior infections. While existing vaccines still offer some protection against the Omicron variant, the probability of “vaccine escape” is likely to have increased substantially. Omicron variant could spread between people who are fully vaccinated. It could also re-infect those who have recovered from previous COVID-19 infections.
• Research underway to study the known unknowns. Scientists are studying the ability of existing vaccines to combat the new Omicron variant. Many of the mutations have not been observed in the past. At the moment, it is uncertain how these new mutations will affect the severity of Omicron variant infections. Scientists are also studying whether the Omicron variant causes severe symptoms for those who are fully vaccinated.
• Pharmaceutical companies working feverishly. Pharmaceutical companies are racing to develop new vaccines and booster shots specifically designed to combat the new Omicron variant. Pfizer/BioNTech said they could adapt their mRNA vaccine within six weeks and ship initial batches within 100 days. Moderna said the company will ramp up efforts to develop a booster shot specifically targeting the Omicron variant.
• Air connectivity with seven African nations severed. The government has banned all travellers with recent travel history to seven African countries, namely Botswana, Eswatini, Lesotho, Mozambique, Namibia, South Africa and Zimbabwe, from entering into or transiting through Singapore. Returning Singapore citizens and permanent residents have to serve a 10-day stay-home notice (SHN) at dedicated facilities.

High vaccination rate offers some protection for Singapore.

• As of 26 Nov 21, 94% of Singapore’s eligible population has completed their full regimen and received two doses of COVID-19 vaccines. 85% of the total population is fully vaccinated while 25% have received their booster shots.
• Taking a few steps backward. At the moment, Singapore has not detected any cases of the new Omicron variant. If the Omicron variant spreads to Singapore and results in an increase in hospitalisation, the government may have to tighten safe distancing measures to protect the healthcare system. Prime Minister Lee has warned that the multi-ministry taskforce may have to roll back some of the recent easing of COVID-19 restrictions.

Re-position from Reopening Plays to New Economy Plays.

• We expect a knee jerk reaction to sell S-REITs. The selling pressure is likely to be cushioned by S-REITs’ defensive cash flows. Investors could de-risk by trimming positions in hospitality REITs, such as
  • Ascott Residence Trust (SGX:HMN) (BUY/Target Price: S$1.20),
  • CDL Hospitality Trusts (SGX:J85) (HOLD/Target Price: S$1.24) and
  • Far East Hospitality Trust (SGX:Q5T) (BUY/Target Price: S$0.71).
• Switch to New Economy Plays, such as Ascendas REIT (SGX:A17U) (BUY/Target Price: S$3.83), Frasers Logistics & Commercial Trust (SGX:BUOU) (BUY/Target Price: S$1.79) and Mapletree Industrial Trust (SGX:ME8U) (BUY/Target Price: S$3.72). Frasers Centrepoint Trust (SGX:J69U) (BUY/Target Price: S$2.98) provides resiliency from necessity spending at suburban retail malls.

Ascendas REIT (SGX:A17U)

• Positive rental reversion driven by Singapore and the US. Ascendas REIT achieved positive rental reversion of 3.7% in 3Q21 (1Q21: 3%, 2Q21: 8.9%). In Singapore, business space, high-specifications industrial buildings & data centres and logistics & distribution centres provided healthy reversions of +3.7%, +5.1% and +4.6% respectively.
• Creating a life science and innovation campus. Ascendas REIT and sponsor CapitaLand Development will jointly redevelop 1 Science Park Drive into a life science and innovation campus comprising three Grade-A business park towers with column-free floor plates of more than 3,000sqm and an event plaza. Ascendas REIT owns 34% in the redevelopment based on its GFA contribution. On a stabilised basis, the 34% stake provides NPI yield of 6.3% and increase pro forma 2020 DPU by 0.5%.
• See
  • Ascendas REIT's Share Price,
  • Ascendas REIT's Target Price,
  • Ascendas REIT's Analyst Reports,
  • Ascendas REIT's Dividend History,
  • Ascendas REIT's Announcements,
  • Ascendas REIT's Latest News.

Frasers Logistics & Commercial Trust (SGX:BUOU)

• Sizeable sponsor pipeline supports future growth. Frasers Logistics & Commercial Trust has right of first refusal to acquire logistics properties with NLA of 2.0m sqm in the Asia Pacific region and Europe from sponsor Frasers Property (SGX:TQ5). The acquisition pipeline is valued at more than S$5b as of Jan 21. Frasers Property is also actively developing more logistics properties and the sponsor pipeline expands at a rate of about S$200m per year.
• Value creation through development. Frasers Logistics & Commercial Trust's newly-acquired Blythe Valley Park located near Birmingham has 3 hectares of vacant land, which could be developed into four units of logistics warehouses. Similarly, Farnborough Business Park located in Thames Valley has a development site (Plot C, Pinehurst III & IV). Management is reviewing feasibility to redevelop the site into a last-mile e-commerce fulfilment centre instead given its proximity to Farnborough Airport and a highdensity residential catchment.
• See
  • Frasers Logistics & Commercial Trust's Share Price,
  • Frasers Logistics & Commercial Trust's Target Price,
  • Frasers Logistics & Commercial Trust's Analyst Reports,
  • Frasers Logistics & Commercial Trust's Dividend History,
  • Frasers Logistics & Commercial Trust's Announcements,
  • Frasers Logistics & Commercial Trust's Latest News.

Mapletree Industrial Trust (SGX:ME8U)

• Pursuing more growth through acquisitions of data centres. Mapletree Industrial Trust has the right of first refusal from the sponsor Mapletree Investments to acquire the remaining 50% stake in their second data centre JV Mapletree Rosewood Data Centre Trust (MRODCT). The acquisition could materialise within 2HFY22. Mapletree Industrial Trust is also on the lookout to acquire data centres from third-party vendors. It intends to diversify geographically to Europe and other gateway cities in the Asia Pacific region.
• See
  • Mapletree Industrial Trust's Share Price,
  • Mapletree Industrial Trust's Target Price,
  • Mapletree Industrial Trust's Analyst Reports,
  • Mapletree Industrial Trust's Dividend History,
  • Mapletree Industrial Trust's Announcements,
  • Mapletree Industrial Trust's Latest News.

Frasers Centrepoint Trust (SGX:J69U)

• Ready to pounce when opportunities arise. Frasers Centrepoint Trust has divested three sub-scale suburban malls, namely Bedok Point (completion: 9 Nov 20), Anchorpoint (completion: 22 Mar 21) and YewTee Point (completion: 28 May 21), for total proceeds of S$438m. The reconstitution enhances resiliency from dominant suburban malls.
• Frasers Centrepoint Trust’s balance sheet has deleveraged with aggregate leverage at 33.3%. It could tap on its sponsor pipeline, such as Northpoint City South Wing. It will also explore opportunities for acquisitions from third-party vendors, such as the remaining 60% stake in Waterway Point.
• See
  • Frasers Centrepoint Trust's Share Price,
  • Frasers Centrepoint Trust's Target Price,
  • Frasers Centrepoint Trust's Analyst Reports,
  • Frasers Centrepoint Trust's Dividend History,
  • Frasers Centrepoint Trust's Announcements,
  • Frasers Centrepoint Trust's Latest News.

S-REITs - SECTOR CATALYSTS

• Recent easing of COVID-19 restrictions would come to a halt and may even be reversed.
• Limited new supply for office, logistics and retail segments in 2021.

S-REITs - ASSUMPTION CHANGES

• We kept our earnings forecast unchanged pending more information and clarity on severity of Omicron variant infection.

S-REITs - RISKS

• A prolonged wave of COVID-19 Omicron variant infections.

Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-11-29

SGX Stock Analyst Report BUY MAINTAIN BUY 3.830 SAME 3.830

BUY MAINTAIN BUY 2.980 SAME 2.980

BUY MAINTAIN BUY 1.790 SAME 1.790

BUY MAINTAIN BUY 3.720 SAME 3.720