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

[behappyalways]

Singapore office rental slips by 9.5% in 2020
https://sbr.com.sg/commercial-property/ ... 95-in-2020

[winston]

SINGAPORE REITS SECTOR – VOLATILITY EXPECTED GIVEN BOND YIELDS SPIKE

The S-REITs sector has come under some selling pressure in recent weeks given the sudden and sharp spike in sovereign bond yields.

This leaves us more cautious on the sector in the near-term as sentiment over yield sensitive instruments weakens and we expect further volatility in the months ahead, with potentially more selling pressure.

We observe that there has historically not been a clear correlation between the FSTREI and 10-year Singapore government bond yield.

However, a sudden and sharp spike in bond yields can cause an initial negative knee-jerk reaction in the share prices of S-REITs.

In the past three episodes when this happened since 2013, we have subsequently seen a 15% to 21% rebound in the sector from the trough over a 12-month period once bond yields stabilise.

Hence, although the sudden surge in bond yields this year is a concern, investors should also focus on the underlying drivers such as a stronger economic outlook, which would support the recovery of the operational performance of S-REITs and drive a potential sector re-rating.

In terms of valuations, given the spike in bond yields, the current forward yield spread between the FSTREI and the 10-year Singapore government bond yield has now compressed to 395 bps, which is below the 10-year average.

For investors looking for exposure to the sector, we would position with a recovery basket comprising retail and hospitality REITs given that we have already seen a more meaningful rotation to value and cyclical stocks globally:
1. Ascott Residence Trust [BUY; FV: SGD1.24],
2. CapitaLand China Trust (CLCT SP) [BUY; FV: SGD1.58],
3. Frasers Centrepoint Trust (FCT SP) [BUY; FV: SGD2.95],
4. Mapletree Commercial Trust (MCT SP) [BUY; FV: SGD2.18] and
5. Mapletree North Asia Commercial Trust (MAGIC SP) [BUY; FV: SGD1.06].

For investors with a longer-term horizon, we would be buyers on dips of high-quality S-REITs which are expected to be beneficiaries of secular growth trends with room for solid inorganic growth opportunities.

Preferred picks within what we term as our resilient basket would be:
1. Ascendas REIT (AREIT SP) [BUY; FV: SGD3.89]
2. Frasers Logistics & Commercial Trust (FLT SP) [BUY; FV: SGD1.62]
3. Keppel DC REIT (KDCREIT SP) [BUY; FV: SGD3.51]
4. Mapletree Industrial Trust (MINT SP) [FV: SGD3.51] and
5. Mapletree Logistics Trust (MLT SP) [BUY; FV: SGD2.17].

Over the next 9-12 months horizon, we would expect our recovery basket to outperform our resilient basket.

4Q/2H20 results largely in-line; forecasting DPU growth of 14.4% in FY21F and 8.9% in FY22F

No clear correlation between S-REITs’ performance and sovereign bond yields, but sudden and sharp spike in bond yields can cause a negative knee-jerk share price reaction

Recovery basket likely to outperform over next 9-12 months: ART SP, CLCT SP, FCT SP, MCT SP and MAGIC SP

Source: OCBC

[winston]

A buyer on recent dips

Good opportunity to accumulate large cap Industrial S-REITs as recent correction of c.18% is close to 21% peak-to-trough drop in 2013 led by taper tantrum

Misconception of “lack of growth”; Industrial S-REITs to deliver acquisition-led 7% y-o-y growth in FY21F DPU, 2.5% above pre-pandemic level

Well plugged into future structural trends with significant exposure in “new economy” assets

Picks are A-REIT, FLCT and MLT

Time to accumulate. The large cap industrial S-REITs have corrected by 18% from its recent peak due to a spike in 10-year yields and rotational interest into the more cyclical retail/office subsectors.

That said, we see value emerging as the recent price decline mirrors closely to that seen in 2013’s taper tantrum days (c.21% peak-to-trough decline) but fundamentals are stronger now.

While investors were rightly worried about a spike in yields impacting returns, we believe this is priced in at current levels.

We are buyers on dips given:-
(i) FY21F DPU growth to accelerate to c7.%, and A-REIT and FLCT offer good value with yield spreads of c.4.1%, wider than pre-pandemic levels.
We also like MLT for its Asia Pacific footprint and pivot into the Indian logistics space.

Misconception that industrial S-REITs lack “growth”, ability to deliver pre-pandemic DPUs in FY21 not priced in . While investors lament on the lack of “growth” for the industrial S-REITs in 2021, we would like to correct this misconception.

Income disruption in 2020 (COVID) was the least compared to other real estate subsectors. In fact, the industrial subsector is projected to deliver c.2.5% higher DPUs compared to FY19 (pre-pandemic) while delivering an acquisition fueled DPU growth of c.7% in FY21.

The large cap industrial S-REITs trade at a FY21 yield of 4.9% (spread of c.3.3%), in line with pre-pandemic days.

Among the large caps, A-REIT trades a yield spread that is even wider when compared to its 3-yr/5-yr mean and 2013 taper tantrum days, offering very good value.

Best plugged into post COVID-19 structural growth trends. We believe that large cap industrial S-REITs remain in a virtuous cycle of acquisition growth, with the ability to deliver on accretive deals to drive upside to our c.7% growth in DPU estimate.

The sector’s earnings resilience is now stronger with the pivot to more new economy assets (Business Parks, Logistics and Data-centers) which formed c.77% of assets in 2020 from c.60% in 2013.

Source: DBS

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

[winston]

SINGAPORE REITS SECTOR – NOT BACK TO SQUARE ONE

The S-REITs sector has been hit with a double whammy, with new restrictive Covid-19 measures in Singapore following up on increasing concerns over inflationary pressures.

This is a pity, as recent 1QCY21 results and business updates provided by S-REITs had shown that good progress has been made in the recovery from the pandemic, although there would now be a temporary setback, especially for retail REITs.

After fine-tuning our assumptions post this earnings season, we are now projecting a rebound in overall DPU (market cap weighted basis) by 16.9% for the current financial year (FY21/22F).

If we compare this to actual FY19 performance (pre-Covid-19), DPU growth would be flat at -0.1%.

For the next financial year (FY22/23F), we are forecasting DPU growth of 6.4%. Following the new Covid-19 measures in Singapore, we acknowledge that there could be some downside risks to our forecasts, depending on how the situation develops.

Another area of focus for the S-REITs sector stems from growing concerns over inflationary pressures, and the corresponding effects this might have on bond yields.

Drawing reference from historical data, we note that there has been a positive correlation between the YoY change in the Singapore Consumer Price Index (CPI) and corresponding YoY changes in both the price and rental indices based on URA and JTC statistics.

The correlation is more significant if we apply a 12-month lag to the price and rental data, with the residential and industrial sub-sectors having the highest correlation.

From a valuation perspective, given the recent decline in share prices following the spike in Covid-19 community cases in Singapore and easing of the 10-year Singapore government bond yield to 1.54% (YTD peak was 1.75% on 30 Mar), the current forward yield spread between the FTSE ST REIT Index and the 10-year Singapore government bond yield now stands at 398 basis points (bps).

This is approximately 0.4 standard deviations below the 10-year average of 420 bps, but 52 bps higher than the YTD low of 346 bps on 5 Apr.

In terms of sector positioning, while we had previously pitched for S-REITs primed as recovery/reopening plays, these retail and hospitality REITs would see a temporary setback, and investors are likely to seek shelter in REITs exposed to the industrial/logistics/data centre sub-sectors in the near-term.

We like Ascendas REIT (AREIT SP) [BUY; FV: SGD3.84], Frasers Logistics & Commercial Trust (FLT SP) [BUY; FV: SGD1.62], Keppel DC REIT (KDCREIT SP) [BUY; FV: SGD3.32] and Mapletree Logistics Trust (MLT SP) [BUY; FV: SGD2.10] within this group, but would take advantage of share price weakness in Ascott Residence Trust [BUY; FV: SGD1.22], CapitaLand Integrated Commercial Trust (CICT SP) [BUY; FV: SGD2.51], Frasers Centrepoint Trust (FCT SP) [BUY; FV: SGD2.78] and Mapletree North Asia Commercial Trust (MAGIC SP) [BUY; FV: SGD1.18] as opportunities to accumulate, given our expectations that the decisive actions taken by the Singapore government would help to contain the spread of the virus.

New restrictive measures in Singapore from 16 May to 13 Jun 2021 following spike in Covid-19 community cases

Retail S-REITs to suffer the biggest hit given adverse impact to tenants’ sales

Selective industrial/data centre REITs to provide shelter during this Phase 2 period

Source: OCBC

[winston]

GLOBAL REAL ESTATE SECTOR – DISRUPT OR BE DISRUPTED

The dampening effects of the Covid-19 pandemic have created challenges for the real estate sector, some of which are structural in nature.

However, on the other hand, opportunities have also emerged and provided tailwinds for others.

Increased digitalisation and e-commerce penetration rates have boosted demand for data centres and modern logistics properties.

We believe this bodes well for Keppel DC REIT (KDCREIT) [BUY; FV: SGD3.32], and to a smaller extent Ascendas REIT (AREIT SP) [BUY; FV: SGD3.84].

Within the logistics space, we like Frasers Logistics & Commercial Trust (FLT SP) [BUY; FV: SGD1.62] and Mapletree Logistics Trust (MLT SP) [HOLD; FV: SGD2.10], with the former having logistics properties in Australia, Germany, and the Netherlands, and the latter being a pure play logistics REIT with properties in countries such as Singapore, China, Vietnam, Hong Kong and Australia.

The office sector faces disruption from work-from-home (WFH) trends, with co-working spaces seemingly making a comeback given the need for flexibility, although this recovery is still fraught with uncertainties.

We would look out for real estate players who are able to offer flexible workspace solutions and speed to market in their offerings, including the leasing of space to co-working operators while keeping the exposure manageable.

For example, CapitaLand (CAPL SP) [HOLD; FV: SGD4.03] has responded to these changing needs by offering tenants a “core-flex” solution.

The rise in e-commerce penetration rates may have boosted demand for logistics assets, but it has also posed structural challenges for the retail sector.

That said, we believe that brick and mortar retail and online retail need not be a zero-sum game, as an omnichannel strategy can enhance a customer’s shopping experience in both an offline and digital format.

CapitaLand, CapitaLand Integrated Commercial Trust (CICT SP) [BUY; FV: SGD2.51], Frasers Centrepoint Trust (FCT SP) [BUY; FV: SGD2.78] and Simon Property Group (SPG US) [HOLD; FV: USD149] are names which we believe are adapting to stay relevant.

Disruption from Covid-19 pandemic has caused challenges but also created opportunities

Increased digitalisation, return of co-working spaces and omni-channel strategies are key trends disrupting the real estate sector

Adaptability is key to survival

Source: OCBC

[winston]

Singapore Real Estate – Gradual reopening – Upgrade CICT to Buy.

Our preference for Industrial REITs remains unchanged given strong fundamentals and acquisitions.

However, with vaccination rate in Singapore on track to hit 80% by Sep-21, we adopt a more favorable view on commercial REITs and upgrade CICT from Neutral to Buy with an unchanged TP of S$2.32 (14% total return vs. 11% for our average S-REITs coverage).

We believe the completion of CapitaSpring and 21 Collyer Quay can more than offset vacancy pressure for CICT, driving 9% DPU growth in FY22E.

Reiterate Buys on AREIT, MINT and KDCREIT, and Sell on MCT.

Source: GS

[behappyalways]

ARA and Chelsfield purchased the building in 2019 for $555.5 million under an equal partnership.
https://www.theedgesingapore.com/news/p ... re-800-mil

[winston]

Standard Chartered slashes its Singapore office space by half

Source: Yahoo Finance

https://sg.finance.yahoo.com/news/stand ... 34431.html

[behappyalways]

部分业者租金 今年以来上涨高达四成
https://m.youtube.com/watch?v=JUWybXh1wP4

[winston]

Singapore REITs – Climbing the “higher for longer” wall of worry

The S-REITs sector endured a tumultuous period in Oct 2023, correcting 6.9% before finding some reprieve in early Nov 2023 as share prices rebounded due to weak US payrolls data for the month of Oct 2023 and uptick in US unemployment rates which provided a signal that the Federal Reserve’s (Fed) rate hikes are likely now over.

Our house view is for the fed funds rate to stay at 5.25-5.50% until next summer to curb inflation, before turning to rate cuts from Jun 2024, with a fed funds rate forecast of 4.50-4.75% over a 12-month horizon.

During the recently concluded 3Q23/9M23 earnings season, out of the eight S-REITs under our coverage which reported distribution per unit (DPU) data, seven declared lower year-on-year (YoY) DPU.

The average and median DPU growth came in at -4.7% and -3.6% YoY respectively, for the reporting period. However, the lacklustre performance did not come as a surprise, as all these S-REITs’ results met our expectations.

Following this round of earnings, we adjusted our DPU forecasts by -0.7% for the current financial year (FY-1) and -0.9% for the next financial year (FY-2) on average, and by -0.2% for FY-1 and -0.7% for FY-2 on a median basis.

Following these revisions, we now expect S-REITs under our coverage to register average/median DPU growth of -3.2%/-1.9% for FY-1, followed by a slight rebound of 1.8%/1.3% for FY-2.

Our forecasts are 1.1% (average) and 1.4% (median) below the street for FY-1, and 0.5% (average) and 1.4% (median) lower than the street for FY-2. We have cut our fair value estimates by a larger magnitude of 7.5% on average and 6.9% on a median basis.

This can be attributed largely to higher discount rates given increased market volatility and lower terminal growth assumptions as risks of a “higher for longer” interest rate environment could curtail both organic and inorganic growth prospects for the sector.

As we moved from 2Q23 to 3Q23, overall balance sheet metrics were stable for the S-REITs under our coverage. On a like-for-like basis, aggregate leverage ratio inched up quarter-on-quarter (QoQ) from 38.3% to 38.5%; proportion of debt hedged increased QoQ from 75.9% to 76.1%; interest coverage ratio declined QoQ from 4.4x to 4.0x; while weighted average cost of debt increased only 6 basis points (bps) sequentially to 3.23%, versus an increase of 9bps QoQ in the preceding quarter.

From a valuation viewpoint, the FTSE ST Real Estate Investment Trusts Index (FSTREI) is trading at a forward price-to-book (P/B) multiple of 0.82x (as at 10 Nov 2023), which is 2.2 standard deviations (s.d.) below its 10Y average of 0.99x.

The forward distribution yield of 6.8% is 60bps or 1.2 s.d. above the 10Y average of 6.2%. Given the pullback in the Singapore 10Y government bond yield to 3.10% from a recent high of 3.51%, the current distribution yield spread between the forward distribution yield of the FSTREI and the Singapore 10Y government bond yield increased to 369bps, as at 10 Nov 2023, or 0.6 s.d. below the 10Y mean of 403bps.

This current yield spread is close to the 5Y average of 386bps, and is a tad above the 3Y mean (363bps). Based on fund flow data from the Singapore Exchange, we can infer that S-REITs are among the least crowded trades for institutional investors, and reinvestment risks from shorter tenor alternative yield instruments such as the Singapore 6-month and 1Y Treasury bills lead us to opine that S-REITs can still warrant a position within investors’ portfolio.

As such, we reiterate our constructive stance on the S-REITs sector, but on a selective basis. We would avoid painting a broad brush across the entire sector as the macroeconomic environment remains uncertain and risks of a “higher for longer” interest rate environment would still have an adverse impact on DPUs both from an organic and inorganic perspective.

From a bottom-up stock picking strategy, we continue to favour higher quality S-REITs with strong sponsors and robust balance sheets that can allow them to participate in more active inorganic growth when opportunities arise, and to better withstand a “higher for longer” interest rate environment. We also like S-REITs with at least some Singapore asset exposure given their relatively more resilient capital values and avoidance of FX translation losses.

Besides reiterating our preference for CapitaLand Ascendas REIT [CLAR SP; FV: SGD3.17], Frasers Logistics & Commercial Trust [FLT SP; FV: SGD1.33], CapitaLand Ascott Trust [CLAS SP; FV: SGD1.14] and Mapletree Industrial Trust [MINT SP; FV: SGD2.59], we include Frasers Centrepoint Trust [FCT SP; FV: SGD2.35] as a replacement for Mapletree Logistics Trust [MLT SP; FV: SGD1.72].

We remain cautious on the outlook of Suntec REIT [SUN SP; FV: SGD1.06] and Keppel REIT [KREIT SP; FV: SGD0.84], while ongoing concerns over the financial health of Keppel DC REIT’s [KDCREIT SP; FV: SGD2.02] master lessee in China may continue to cast on overhang on its share price, in our view.

Source: OCBC