Singapore - Comm Properties & REITS 03 (Feb 19 - Dec 26)

[winston]

Singapore REITs – A shade of rainbow after the rain

IRAS, MAS and MOF jointly issued a press release on 16 Apr highlighting new measures to support S-REITs in light of the challenges caused by the COVID-19 global pandemic.

The first initiative comes in the form of an extension in timeline from three months to 12 months for S-REITs to distribute at least 90% of their FY20 taxable income to unitholders to qualify for tax transparency.

We view this positively from a REIT’s perspective.

However, unitholders are likely to bear some impact from this timeline extension as payout ratios may be lowered in the near-term, especially by retail and hospitality REITs, in our view.

The second measure is the increase in leverage limit for S-REITs from 45% to 50% with immediate effect to allow more flexibility in the management of capital structures.

Last but not least, the implementation of a new minimum interest coverage ratio requirement would be deferred to 1 Jan 2022.

The FTSE Straits Times REIT Index (FSTREI) recorded a 22.9% rebound from its recent trough which was set on 23 Mar, but total returns for the sector are still -18.9% YTD.

That said, S-REITs have outperformed most of the other major REIT markets (in local currency terms).

We would position our longer-term top picks with government-linked REITs with strong sponsors, such as Ascendas REIT (AREIT SP) [BUY; FV: S$3.59], Mapletree Industrial Trust (MINT SP) [BUY; FV: S$2.87] and Mapletree Commercial Trust (MCT SP) [BUY; FV: S$1.96].

We also like NetLink NBN Trust (NETLINK SP) [BUY; FV: S$1.10] for its resilient business model.

Source: OCBC

[winston]

REITS
Standing The Test Of Time; Keep OVERWEIGHT

Overweight (Maintained)

Top Picks Target Price
Suntec REIT (SUN SP) – BUY SGD 1.78
ESR REIT (EREIT SP) – BUY SGD 0.50
Manulife US REIT (MUST SP) – BUY USD 0.88


Stay OVERWEIGHT; accumulate undervalued gems –

Top Picks: Suntec REIT, ESR REIT, Manulife US REIT.

SREITs recovered from March lows (+22% from bottom) as investors bottom fish for yields amidst
an uncertain outlook.

While REITs are expected to undergo near-term pain from sharply lower economic activity, the impact should be mitigated by locked-in leases and diversified portfolios.

Amidst a hazy outlook and rapidly changing market conditions, we recommend investors to slowly accumulate undervalued REITs with strong sponsor backing, quality assets and operational track record

Source: RHB

https://research.rhbtradesmart.com/atta ... ec3df2.pdf

[winston]

Bracing for the impact of Covid-19 in 2Q

The REITs conserved cash by lowering dividend payout due to uncertainties.

Traffic and tenants sales were impacted, but no real impact on rental reversions and rental deferments yet.

Reiterate Add on FCT and ESR, Hold on MCT.

Source: CIMB

https://rfs.cgs-cimb.com/api/download?f ... 8BAC0048C8

[winston]

But Retail REITs

Better than any other cashback program.

Since the announcement of the extended circuit breaker measures, retail REITs we previously recommended have taken a slight dip after a week of run up.

While surely, another month of closures will affect DPUs for FY20 a little more, we still believe that there are significant upsides for when life begins to even marginally, resemble normalcy.

Source: KGI

[winston]

Singapore REITs: Fortifying our economy

A fourth round of stimulus package (Fortitude Budget) totalling S$33b was announced by the Singapore government on 26 May 2020.

Adding this to the previous three Budgets announced earlier this year, a total of S$92.9b, or ~19.2% of Singapore’s GDP will be spent to boost the economy.

Besides an enhancement to the Jobs Support Scheme (JSS), one of the more significant announcements affecting the S-REITs sector comes from rental relief measures to support SMEs.

This comes in the form of new government cash grants which will be provided to SME tenants in qualifying commercial and other non-residential properties such as industrial and office properties.

However, it was also highlighted that a new Bill will be introduced by the Ministry of Law which will mandate that landlords have to contribute by granting a rental waiver to their SME tenants who have suffered a significant drop in revenue in the past few months.

The implication of this is that SME tenants in commercial properties who have experienced a significant decline in revenue will benefit from a total of four months of rental relief to be shared equally between the government and landlords.

Other SME tenants in industrial and office properties will also be given some relief. While this is potentially negative on affected S-REITs’ near-term cashflows, we believe ensuring the survival of their tenants would have far-reaching benefits as any backfilling of vacancies would likely take a prolonged period of time amid a global recession.

Given the continued challenges and uncertainties over the Covid-19 situation, we continue to recommend investors to stick with quality REITs with strong sponsors and healthy balance sheets, and/or REITs with deep value (i.e. negatives priced in).

Our preferred S-REIT picks are Ascendas REIT (AREIT SP) [BUY; FV: S$3.52], Mapletree Industrial Trust (MINT SP) [BUY; FV: S$2.84] and Mapletree North Asia Commercial Trust (MAGIC SP) [BUY; FV: S$1.13].

Source: OCBC

[winston]

not vested

Singapore REITs: Balanced approach to mitigating Covid-19 challenges

Singapore’s Ministry of Law (MinLaw) has provided more details on a COVID-19 (Temporary Measures) (Amendment) Bill to be introduced in Parliament.

Besides what was announced by Deputy Prime Minister and Finance Minister Mr Heng Swee Keat during his Fortitude Budget Speech, we note that SMEs must have experienced a 35% or more reduction in their average monthly revenue from Apr to May 2020 on a YoY basis before they are eligible for additional rental waivers from their landlords.

SMEs that qualify for landlord relief may also opt for a prescribed repayment scheme for a specified portion of rental arrears at an interest payable which is capped at 3% per annum.

Separately, authorities also announced on 3 Jun a number of measures to support landlords, such as a further extension in timelines for S-REITs to distribute their taxable income for FY20 and FY21.

With the recent sector share price rally, we grow more cautious on valuation grounds.

Our top Buy picks remain intact: Ascendas REIT (AREIT SP) [BUY; FV: S$3.52], Mapletree Industrial Trust (MINT SP) [BUY; FV: S$2.84] and Mapletree North Asia Commercial Trust (MAGIC SP) [BUY; FV: S$1.13].

For MINT SP, it will be added to the Straits Time Index following the Jun 2020 quarterly review.

Source: OCBC

[winston]

Singapore Office REITs
Grab it while it lasts

Office sector is near an inflection point

Minimal office completions to support a gradual recovery till 2022

Longer-term structural demand shift to be partially mitigated by short-term COVID-19 demand

Top picks KREIT and MCT; upgrade CCT on the re-rating of CMT

Office sector near an inflection point. Despite facing a steep economic recession in 2020, we believe that Singapore’s economy is near an inflection point with the steepest GDP contraction expected in 2Q20.

Based on historical trends over the past three recessions, we note that this period will also coincide with the bottom in both office demand and office S-REIT share prices.

We believe it pays to be early in our call, given attractive risk/reward ratios for the sector which is trading at 0.8x P/NAV, below its historical mean.

Our top picks for the sector are KREIT and MCT. We upgrade CCT to BUY from HOLD, led by the repricing of our target price for CMT.

Minimal net supply until 2022 with project delays.

While economic recovery is projected to be gradual from 2H20, we see downside risk mitigated by the lack of new supply completions until 2022. Over 2020-2022, with projected construction delays, only c.71k sqft of new net supply in downtown core will be completed. This is far less than the supply in previous crises (range 818k-2,842k sqft).

Therefore, we believe the low levels of net incoming supply, coupled with record low vacancies (<5% in downtown core), will mitigate a steeper fall in office fundamentals and set the stage for a faster recovery into 2021 and beyond when the economy recovers.

The future of work spaces – not a clear downtrend as feared. We believe it is too early to turn cautious on potential structural demand shifts with the adoption of work-from-home (“WFH”) practices.

While flexible working policies will be core, we do not see a 180-degree pivot towards WFH but a balance will be sought. In fact, we see Office S-REITs upping the game by offering flexible workspace to meet their tenants’ evolving needs and integrating with sustainability practices.

A near-term supporting factor is demand for more space for safe distancing requirements and Business Continuity Plan (BCP) needs.

Risks:
(i) slower-than-expected recovery
(ii) supply completions being earlier than expected.

Source: DBS

https://researchwise.dbsvresearch.com/R ... eghgkfdhjg

[winston]

Liquidity-Driven Rally Marches On; OVERWEIGHT
Overweight (Maintained)

Top Picks Target Price
Suntec REIT (SUN SP) – BUY SGD1.78
Manulife US REIT (MUST SP) – BUY USD0.90
ARA Logos Logistics Trust (ALLT SP) –BUY SGD0.64
IREIT Global (IREIT SP) – BUY SGD0.83

Keep OVERWEIGHT; stay selective amidst recent rally. SREITs have rebounded 38% from March lows and are now trading closer to long-term mean valuations.

Signs of liquidity returning coupled with the central bank’s pledge to keep interest rates low should keep investors’ interest in SREITs high.

We recommend investors to continue to accumulate laggard plays

Source: RHB

https://research.rhbtradesmart.com/atta ... e529fd.PDF

[winston]

CBD Grade A office rents moderate 1.2% in Q2

Further rental declines expected over the next two quarters.

Average grade A office rents in the Central Business District (CBD) moderated 1.2% QoQ in Q2 to $10 per sqft, whilst grade B rents slid 1.8% QoQ on a like for like basis, according to Colliers International.

Colliers International Head of Research for Singapore Tricia Song expects to see further rental declines over the next two quarters, as leasing demand continues to weaken as the global economy slows down.

“Further, landlords are starting to offer longer rent-free periods, and we are likely to see higher incentives reflected in the next quarter,” she added.

Landlords are focusing on tenant retention resulting in a 1.7% QoQ decrease in premium and grade A rents in Raffles Place and New Downtown, according to Rick Thomas, Head of Occupier Services in Singapore at Colliers International.

However, there is room for more negotiation in the grade B office market which saw renewals and new leases pushing down rents by 6% to 10%.

In addition, relatively muted CBD grade A supply should be expected through 2021, with annual expansion averaging 3% of stock versus 5% for the last five years. The next major supply wave of about 7% of stock is scheduled for 2022.

On the other hand, CBD grade A vacancy rose to 4.6% in Q2, from 3.1% in Q1 and could rise further as the year progresses and new supply enters the market. Colliers Research forecasts vacancy could rise to 7.5% by the end of the year.

Flexible workspace sector was the demand driver in the quarter. New space take-up includes JustCo’s 45,000 sqft new branch opening at OCBC Centre East, and Arcc Spaces’ 19,000 sqft flagship centre at One Marina Boulevard.

Meanwhile, total office or mixed office investment volumes grew 76.7% QOQ to $1.3b in Q2 despite the circuit breaker, bringing the rolling 12-month volume to $6.2b. Sales during the quarter were driven mainly by two major transactions both sold by Perennial.

Furthermore, average imputed capital value of CBD Grade A office properties declined 0.6% QoQ to $2,504 psf, in line with the rental declines in Q2. Colliers’ valuation team, meanwhile, maintained cap rates unchanged at a range between 3.15% and 3.50% in Q2.

However, the study remains optimistic and expects long-term capital value growth to be intact, at 2% p.a., versus the long-term rental growth of 3.3%.

Source: SBR

https://sbr.com.sg/commercial-property/ ... e-12-in-q2

[winston]

Chart of the Day: Around 4.3 million sqft of office supply in the works

The market will face a huge supply coming on board in 2022.

This chart from EDMUND TIE shows that the total office supply pipeline from Q2 2020 to 2024, is estimated around 4.3 million sqft or 905,000 sqft per anuum, with most of the supply expected to be completed by 2022.

In 2021, the pre-committed rates for most buildings in the core business district (CBD) are healthy.

For example, CapitaSpring currently has a pre-committed rate of around 35%, comprising tenants such as The Work Project and J.P. Morgan.

“However, the market will have to grapple with the huge supply coming on board in 2022 such as Central Boulevard Towers (NLA: 1.3m sq ft) and Guoco Midtown (NLA: 650,000 sq ft),” the report stated.

Source: SBR

https://sbr.com.sg/commercial-property/ ... y-in-works