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S-REITs in 'flurry' of M&A activities, BOE may deploy negative interest rates: UOB Kay Hian

Jovi Ho
Jovi Ho • 2 min read
S-REITs in 'flurry' of M&A activities, BOE may deploy negative interest rates: UOB Kay Hian
The analysts are maintaining their “overweight” call on the sector.
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S-REITs continued to announce yield-accretive acquisitions, while correcting 3% in the latter half of September, note UOB Kay Hian analysts Jonathan Koh, Loke Peihao and Nicola Ho. The analysts are maintaining their “overweight” call on the sector, consistent throughout the healthcare, hospitality, industrial, office and retail subsectors.

UOB Kay Hian analysts note the flurry of M&A activities continues with Mapletree Industrial Trust (MINT) acquiring a data centre and office in Virginia in the US between the range of US$200.6 million to US262.1 million ($272.68 million to $356.27 million), subject to calibration of terms.

See: Frasers Centrepoint Trust raises $575 mil in private placement following announcement

The property is fully leased to one multi-national company on a triple net basis with a balance lease term of more than five years. MINT's assets under management (AUM) will increase 4.5% to $6.9 billion. Data centres will expand from 38.5% to 41% of AUM. Freehold properties will increase from 51.8% to 55.9%. Management disclosed that the deal is accretive to distribution per unit (DPU) even if priced at the higher end of the range.

Over in the UK, Andrew Bailey, governor of the Bank of England (BOE), first confirmed that negative interest rates are under “active review” during questioning by MPs at the House of Commons select committee on May 20, note the analysts.

Since then, the BOE has stressed that negative interest rates are part of its toolbox although there is no plan to use them yet. This is a departure from the BOE’s previous stance that it is not planning or contemplating negative interest rates.

The British economy battling two severe headwinds, note UOB Kay Hian. There is a resurgence of Covid-19 infections in the UK. At the same time, the unemployment rate is expected to spike when the government’s furlough scheme expires in October. The BOE forecasts the unemployment rate will almost double to 7.5% by end-2020. There have been complaints that the economy is recovering too slowly. Several Monetary Policy Committee (MPC) members have been pushing for the adoption of negative interest rates to accelerate the still-sluggish economic recovery.

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