UOB Kay Hian analyst Jonathan Koh has kept his “overweight” rating on Singapore REITs (S-REITs), focusing on defensive names with resilient balance sheets.
In his Apr 4 report, Koh says he is cautiously optimistic that inflation would ease gradually in 1HFY2023, although the external environment remains uncertain with persisting geopolitical rivalries. “S-REITs would benefit from the easing of interest rates in 2024 in the event economic growth slows down or falters,” adds Koh.
In February, FTSE ST Real Estate Investment Trusts Index corrected 0.5%, underperforming compared to Straits Times Index’s 0.1% fall, Koh points out.
Despite this, S-REITs have weathered the mini banking crisis in the US and Europe, amid the US Federal Reserve’s (Fed) hike of Fed Funds Rate by 25 basis points to 4.75% on March 22.
Under his coverage, Koh has “buy” calls on CapitaLand Ascott Trust HMN , CapitaLand Ascendas REIT (CLAR) A17U , Frasers Logistics & Commercial Trust (FLT) BUOU and Mapletree Logistics Trust (MLT) M44U , with target prices of $1.39, $3.30, and $1.56 and $1.99 respectively.
For the month of March, Koh highlights that MLT had further expanded in Australia, Japan and South Korea — proposing to acquire eight modern logistics assets across the three countries for a total acquisition price of $913.6 million, 4% below independent valuation.
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The trust is currently conducting due diligence to potentially acquire two modern logistics assets in China for $209.6 million. Meanwhile, as part of its asset recycling, MLT is also divesting a property in Hong Kong for $100.3 million.
On March 30, MLT completed a private placement of 121.3 million new units at an issue price of $1.649 per new unit to raise gross proceeds of $200 million. The debt funding structure includes Japanese yen debt and partial Chinese renminbi debt to provide natural hedge for MLT’s Japan and China assets, Koh notes.
Assuming that the potential acquisitions in China as well as the potential divestment in Hong Kong take place, MLT’s DPU accretion on a pro forma basis for 9MFY2023 would be approximately 2.2%, says Koh. The net asset value per unit would increase by 0.6% to $1.42, while aggregate leverage would increase by 3.3 percentage points to 39.9%, he further elaborates.
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In March, S-REITs top outperformers include Mapletree Pan Asia Commercial Trust N2IU , which gained 4.7% as Festival Walk benefits from the China border reopening.
On the data centre front, Keppel DC REIT AJBU and Mapletree Industrial Trust ME8U gained 4% and 0.4% respectively, while industrial REIT CLAR gained 3.2%. Logistic REITs FLT and MLT gained 3.1% and 1.2% respectively, Koh notes.
Meanwhile, the top underperformers for the month include Digital Core REIT DCRU , which declined 27% due to concerns over the financial health of its second largest tenant Cyxtera. On the other hand, US office REITs namely Manulife US REIT BTOU , Prime US REIT OXMU and Keppel Pacific Oak US REIT CMOU suffered the brunt of investors’ wrath at -20.4%, -20% and -14.6% respectively, says Koh. United Hampshire US REIT ODBU was also impacted with a 9.6% decline, he concluded.
