CFA Society Singapore
SINGAPORE (Feb 28): Maybank Kim Eng is remaining “positive” on the Singapore REIT space as it believes sector valuations will remain supported by recovering distributions per unit (DPUs), especially for hospitality; increased traction of capital recycling initiatives and acquisition momentum; and a backdrop of a slower rate hike cycle.
Maybank continues to favour large-caps and laggards, specifically Ascendas REIT (A-REIT), CDL Hospitality Trusts (CDL HT), and Frasers Commercial Trust (FCT) as they continue to trade at 5.7-6.1% FY19 dividend yield, versus the sector’s 4.9% average.
All three REITs are rated “buy” with target prices of $2.95, $1.80 and $2.55, respectively, and projected to deliver 3.6-6% DPU CAGR against the sector’s 0.5-3.5% range.
In a Thursday report, analyst Chua Su Tye says he sees positive demand outlook into the coming quarters for hospitality REITs on the back of 5-6% revenue per available room (RevPAR) growth, with recovery to be further strengthened by easing supply.
While he notes CapitaLand Mall Trust’s (CMT) Westgate deal buoyed the retail REITs’ performance in the latest quarter, larger suburban malls and outlets remain the analyst’s preferred retail plays as he continues to rate CMT at “hold” with a target price of $2.25.
Instead, his preferences remain the business parks and high-tech focused REITs such as A-REIT and Mapletree Industrial Trust (MINT), which is rated “buy” with a target price of $2.20.
“We see further momentum in capital recycling given clear (overseas) growth mandates, while narrowing cap rates (in office, hospitality, retail) against tight supply suggest divestment opportunities… Buoyant sector equity market activity since 4Q 2018 could support additional funding initiatives for further deals,” says Chua.
The analyst is recommending a relative value pair trade for trading-oriented investors, being ‘long’ and ‘short’ on A-REIT and CMT, respectively.
“The A-REIT-CMT dividend yield-spread has widened to 120bps in the past six months given CMT’s strong share price performance; CMT shares now yield 4.7%, close to -1 SD below its 16-year average of 5.4% while AREIT gives 5.9% with acquisition–led DPU upside,” he adds.
As at 4.18pm, units in A-REIT, CDL HT, FCT, CMT and MINT are trading at $2.81, $1.58, 73 cents, $2.41 and $2.