SINGAPORE (Oct 5): UBS says Singapore real estate investment trusts (SREITs) are expected to see DPU growth of 1.0% per annum from 2016 through to 2019, even as they go on the acquisition trail.
Healthcare and Industrial sector REITs are expected to lead the growth, at 3.7% and 2.5% respectively.
According to UBS, SREITS are trading at an expected yield of 6.0% in 2017, some 406 basis points higher than government bonds.
“In terms of year-to-date price performance, SREITs are up 14.0% but trails developers at 25.7%,” says UBS lead analyst Cheryl Lee in the Singapore market wrap for September.
The continued growth is expected to come on the back of acquisitions amid an improving economic outlook.
CapitaLand Commercial Trust (CCT) in September announced it is buying Asia Square Tower 2 from American asset manager BlackRock Inc for a total of $2.15 billion.
The acquisition of the 46-storey Grade A office building located in Singapore’s Marina Bay financial district is one of republic’s largest real estate deals this year.
See: CapitaLand Commercial Trust to buy Asia Square Tower 2 for $2.15 bil
“To be part-financed by a rights issue, the transaction is DPU dilutive and we believe could result in near term share price weakness,” says Lee. “Nevertheless, we think this acquisition is positive for the medium-term as it enhances the quality and growth potential of CCT's portfolio at an attractive price.”
UBS has a “neutral” rating on CCT with a target price of $1.58.
As at 12.38pm, units in CCT are trading flat at $1.65.
Meanwhile, Mapletree Logistics Trust (MLT) is looking at beefing up its Hong Kong footprint.
MLT in late August announced the acquisition of Mapletree Logistics Hub Tsing Yi from its sponsor for HK$4.8 billion ($834.8 million).
The 11-storey modern ramp-up warehouse in Hong Kong is set to be MLT’s largest acquisition to date.
See: Mapletree Logistics Trust to acquire Hong Kong warehouse for $834.8 mil
“Mapletree Logistics Trust's share price has risen 19% year-to-date, outperforming both the SREIT universe and STI index by 6 percentage points,” says Lee. “We believe this was driven by its attractive valuations and a stabilisation of operations in Singapore.”
“Further, we believe the capital deployment into Hong Kong where market fundamentals are the strongest within MLT's portfolio could also elevate its appeal,” she adds.
UBS has a “buy” recommendation on MLT with a target price of $1.30.
As at 12.38pm, units in MLT are trading flat at $1.24.
UBS’ key picks for SREITs are MLT and Ascendas REIT in Industrial sub-sector, as well as Frasers Centrepoint Trust and CapitaLand Retail China Trust in the Retail sub-sector.
