SINGAPORE (May 2): UOB Kay Hian is keeping “overweight” on Singapore REITs (S-REITs) post the announcement of Mapletree Logistics Trust (MLT) and Frasers Hospitality Trust’s (FHT) latest set of quarterly results, which the research house continues to rate “hold” and “buy” at target prices of $1.41 and 90 cents, respectively.
In a report last Friday, lead analyst Vikrant Pandey says both REIT’s results came in line with expectations, with MLT and FHT’s respective 4Q and 2Q distributions making up 100.1% and 47.6% of full- and half-year estimates.
See: Mapletree Logistics Trust posts 4.1% increase in 4Q DPU to 1.937 cents
See: Frasers Hospitality Trust's 2Q DPS falls 7.8% to 1.1126 cents on weaker portfolio performance overseas
While MLT’s higher DPU was driven by organic growth from its existing portfolio and initial contribution from a newly-completed redevelopment in Singapore, as well as contributions from its acquisitions, Pandey notes that industrial rents are still declining in Singapore amid signs of industry stabilisation.
He also remains positive on the trust’s proposed acquisition of a 50% stake in 11 logistics properties in China, which is expected to boost FY17/18 DPU by 0.4% but increase MLT’s free float by 8.5% to $2.6 billion.
See: Mapletree Logistics Trust to acquire 50% stake in 11 logistics properties in China from sponsor for $205 mil
“The Singapore leasing market remains competitive in the near term, but new supply is expected to taper in the future years. Meanwhile, Hong Kong continues to enjoy favourable supply-demand dynamics, which will support rents and high occupancies. MLT’s portfolios in Japan and Australia are expected to remain stable, due to the long leases and 100% full occupancy,” says the analyst.
On the other hand, Pandey highlights how FHT’s overall portfolio performance weakened over 2Q18 on the back of soft corporate demand for its Sydney properties; lower average daily rates (ADR) and occupancy at Fraser Suites Singapore; and soft leisure demand and adverse winter conditions which affected its UK portfolio.
While the Japan portfolio saw lower gross operating revenue (GOR) over the quarter, the analyst points out that its gross operating profit (GOP) grew due to tighter cost controls to drive higher efficiencies.
In Malaysia, he expects The Westin KL to face more near-term headwinds due to the re-opening of JW Marriott and Ritz Carlton, both of which have undergone massive renovations.
Nonetheless, Pandey notes how Novotel Melbourne on Collins has ramped up well to benefit FHT’s Australia portfolio, with its adjoining mall also having a positive impact on the hotel’s performance post its renovation.
He is also positive on the performance of InterContinental Singapore, which saw higher RevPAR over the quarter on the back of healthy ADR games.
“The impending near-term challenges are the new supply in its micro-market, JW Marriott and Hotel Andaz, which may limit InterContinental Singapore from raising room rates further. Although management expects visitor arrivals to continue its growth trajectory in 2018, majority of the new arrivals are from China and India. These travellers are typically mid-scale, and do not immediately benefit the luxury space where InterContinental Singapore is operating,” says Pandey.
As at 4:19pm, units in MLT and FHT are trading at $1.28 and 76 cents, or 1.23 and 0.96 times book, respectively.
