SINGAPORE (June 22): Maybank Kim Eng Research remains “positive” on Singapore REITs (S-REITs), with confidence that a firmer exchange rate regime poses no immediate threat to the industrial REITs.
The research house has highlighted Ascendas REIT (A-REIT) as its top “buy” pick with a target price of $2.90, given its debt headroom of $1.1 billion and a strong sponsor pipeline.
Mapletree Industrial REIT (MINT), AIMS AMP Capital REIT (AAREIT) and Viva Industrial Trust (VIT) have also been rated at “buy” with target prices of $2.05, $1.60 and 95 cents respectively.
In a Thursday report, analyst Chua Su Tye notes that valuations for S-REITs are well supported by strong investor appetite for yield amid ample liquidity in the system.
“This is also reflected in the robust demand for perpetual securities, whose issuances were up 115% y-o-y in year to date (YTD),” says Chua.
In the analyst’s opinion, Mapletree Logistics Trust (MLT) is a clear beneficiary of such circumstances among the industrial REIT names, as potential interest savings from refinancing its first perp, which is due in Sept 2017, is estimated to boost distribution per unit (DPU) by about 1-2%.
Chua therefore sees potential interest savings for the REIT, as a 1% decline in coupon implies $3.5 million in cost savings and a 1-2% upside to Maybank’s FY18-20E DPU forecasts.
“However, we expect the impact to be relatively muted for the industrial REITs, with average borrowing costs already low at 3.4%, and 2.3-3.0% for the large cap REITs. On average, only 3.4% and 21.8% of total debt is up for renewal in 2017 and 2018. It is probable that refinancing of some of these issues may be brought forward to 2H 17 or early 2018 to lock in the low rates,” he adds.
MLT has thus been rated “hold” at a target price of $1.20.
Looking ahead, Chua sees further catalysts from potential acquisitions in the second half of the year.
“The industrial REITs completed $93 million in acquisitions YTD, primarily due to the completion of Viva’s 6 Chin Bee Avenue transaction announced in Dec 2016, while four divestments have raised $73.4 million. As cost of capital remains depressed, the pace of acquisitions could pick up in 2H 17, which should offer both DPU and valuation upside,” concludes the analyst.
As at 10am, units of A-REIT, MINT, AAREIT and VIT are trading at the respective prices of $2.68, $1.82, $1.46 and 86 cents. MLT is up 0.4% at $1.18.
