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Broker's take: Maybank Kim Eng remains 'positive' on S-Reits

THE outlook for Singapore Reits (real estate investment trusts) remains constructive, with third-quarter DPU (distribution per unit) skewed towards retail and industrial Reits, according to a latest industry note by Maybank Kim Eng.

The brokerage is maintaining its sector bias towards industrial and hospitality Reits, with its top picks including Ascendas Reit (A-Reit), Mapletree Industrial Trust (MIT), CDL Hospitality Trusts (CDLHT), Far East Hospitality Trust (Far East H-Trust) as well as Manulife US Reit.

Maybank Kim Eng has a target price (TP) of S$3.35 for A-Reit, 14.3 per cent higher than its Nov 19 close of S$2.93; a TP of S$2.70 for MIT, up 7.6 per cent from its Nov 19 close of S$2.51; and a TP of S$1.80 for CDLHT, 13.2 per cent higher than its Nov 19 close of S$1.59.

The brokerage has also issued "buy" calls for Far East H-Trust and Manulife US Reit with TPs of S$0.80 and US$1.05 respectively.

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The TP for Far East H-Trust represents a 11.1 per cent upside from its Nov 19 close of S$0.72, while the TP for Manulife US Reit represents a 10.5 per cent upside from its Nov 19 close of US$0.95.

"S-Reits have just ended their September quarterly reporting, with the strongest DPU growth achieved by the retail Reits," Maybank Kim Eng said.

Meanwhile, industrial Reits delivered the strongest year-on-year NPI (net property income) growth with higher contributions from earlier deals that came mostly from overseas.

"Rents have stabilised but growth visibility remains soft, except for newer business parks and high-spec properties. Singapore's hotel RevPAR (revenue per available room) recovery has started to play out, and should strengthen in 2020 from higher corporate demand and easing supply," Maybank Kim Eng analyst Chua Su Tye noted.

Mr Chua added that deal momentum is now up, as S-Reits went on an acquisition spree in the third quarter, lifting DPU growth visibility.

"Industrial Reits were the most active as they pushed further in overseas diversification; overseas AUMs (assets under management) are now at 24-69 per cent, and set to grow," Maybank Kim Eng said.

"Overseas assets, mostly freehold, should strengthen the AUM growth profiles of the S-Reits, with their longer WALEs (weighted average lease expiry) and leases embedded by annual rental escalations supporting DPU visibility."

The brokerage added that investors eyeing returns from both yields and growth should continue to find value in S-Reits, following the sector's recent pull-back.

"S-Reits offer a 280 basis points yield-spread, and now promise the second highest 4.6 per cent dividend yield among developed market peers.

"Our top sector picks stack up well at 9.5 to 11.5 per cent total returns, as do offshore Reits. We recommend buying Manulife US Reit and Sasseur Reit," said Maybank Kim Eng.