Brokers' take: ESR-Reit, ARA Logos, Lendlease Global, Cromwell E-Reit are UOBKH's top contenders for FTSE Russell's real estate index

UOB Kay Hian has named ESR-Reit, ARA Logos Logistics Trust (ARA Logos), Lendlease Global Commercial Reit (Lendlease Global) and Cromwell European Reit (Cromwell E-Reit) as top contenders to join the FTSE EPRA Nareit Developed Asia Index, it said in a research note on Tuesday.

Eligible candidates were ranked based on their free float market capitalisation and trading liquidity, which makes up two-third and one-third of the weightage for inclusion in the index, respectively, said analyst Jonathan Koh.

The index, part of the FTSE EPRA Nareit Global Real Estate Index Series that tracks the performance of listed real estate companies and Reits, is due for its quarterly review in September and currently has 14 Singapore real estate investment trusts (S-Reits) as constituents.

Nine S-Reits have since become eligible for the index after the investable market cap threshold for the Developed Asia Index was lowered to 0.1 per cent from 0.3 per cent.

The analyst has a "buy" call on both ARA Logos and Lendlease Global, with a target price of S$1.02 and S$1.01, respectively.

Mr Koh noted that ARA Logos K2LU : K2LU 0%posted a 10.6 per cent on-year gain in its H1 2021 distribution per unit, and added that it has potential to tap into a sizeable acquisition pipeline from its sponsor.

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Units of ARA Logos were trading at S$0.88 as at 2.41pm on Tuesday, down S$0.02 or 2.2 per cent.

As for Lendlease Global, JYEU  : JYEU 0%its redevelopment of Grange Road Car Park into a multi-functional event space can attract more youths, and it is also on track to complete the acquisition of a 28.1 per cent effective stake in retail mall Jem.

Units of Lendlease Global were trading at 88.5 Singapore cents as at 2.41pm on Tuesday, down 0.5 cent or 0.6 per cent.

UOBKH does not have investment calls on ESR-Reit and Cromwell E-Reit, but Mr Koh noted that both Reits are pivoting towards logistics assets.

Twelve out of 58 properties ESR-Reit J91U : J91U 0% holds interests in are logistic properties. The Reit has also completed its maiden overseas acquisition in Australia and has plans to raise the gross floor area at two of its properties through asset enhancement initiatives.

ESR-Reit units were trading at 47 Singapore cents as at 2.41pm on Tuesday, down 0.5 cent or 1.1 per cent.

Meanwhile, Cromwell E-Reit's CWBU : CWBU 0% diversifying across Europe and has also accelerated its pivot to logistic properties. Its units were trading at 2.47 euros, down two euro cents or 0.8 per cent.

Additionally, Mr Koh added that Mapletree North Asia Commercial Trust RW0U : RW0U 0% is also a strong candidate for the index inclusion, although it is not eligible for this year's review, because it missed the geographical breakdown requirement by one year.

The analyst noted the Reit's efforts to expand acquisitions in Japan and South Korea to reduce its reliance on Hong Kong. Its units were trading flat at S$1.01 as at 2.41pm.

Overall, UOBKH has an "overweight" rating on the S-Reits sector.

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