In Singapore, REITs are an integral part of most investors’ portfolio.
In the first part of this two-part series, we highlight three REITs that have been recommended by analysts following their quarterly earnings announcement.
Stay tuned tomorrow for part two!
1. Frasers Centrepoint Trust (FCT)
Long wait for AEI is over
The 18-month wait of Northpoint’s asset enhancement initiative (AEI) for unitholders is about to be over. The AEI is in its final stage of integration works with Northpoint City South Wing.
Previously during the AEI exercise, occupancy was affected and fell to 54%. Occupancy has since recovered and returned to 81%.
Post-completion of Northpoint AEI will see occupancy raised to 90% from pre-committed rental agreements.
Given the enlarged retail footprint and a lack of supply in the vicinity, FCT still holds significant bargaining power over retailers who want a presence in the northern region.
Thus, DBS Research foresees a 9.0% uplift in rental compared to pre-AEI levels.
Potential acquisition of Waterway Point
DBS Research notes that a potential acquisition of Waterway Point in Punggol will be a potential catalyst for FCT’s share price.
The acquisition of a one-third stake in Waterway Point from its Sponsor, Frasers Centrepoint Limited, will fuel further upside to earnings.
DBS Research believes that Frasers Centrepoint Trust’s low gearing of ~30% gives the Trust the financial capabilities to fund the acquisition.
DBS Research: Frasers Centrepoint Trust (SGX: J69U) – BUY; $2.38
2. Mapletree Industrial Trust (MINT)
A new data centre play for investors
For ‘fans’ of data centres, there is now a new REIT that you can look forward to.
MINT announced an expansion of their Investment Mandate to include overseas real estate primarily for data centre use.
The new mandate has already kicked in as of 26th October. DBS Research notes that this is a move away from its Singapore pure-play status among many REIT investors.
While MINT already owns four data centres in Singapore, it is looking to increase its exposure to data centres overseas.
Moving forward, MINT targets for overseas data-centres to form ~20% of its total assets under management.
MINT has formed a joint venture (Mapletree Redwood Data Centre Trust) with Mapletree Investments to acquire a portfolio of 14 data centres in the US.
Case study of A-REIT: Buying opportunity may arise
According to DBS Research, when REITs venture into overseas real estate markets, it is a long-term positive for unitholders.
Two years ago, A-REIT also forayed overseas into the Australia market. A-REIT eventually managed to deliver strong and consistent distribution per unit (DPU) growth.
But at the first announcement of its overseas venture, A-REIT share price was under pressure given the “uncertainty” from a new overseas investment mandate.
DBS Research notes that the same could happen to Mapletree Industrial Trust.
Referencing the case study of A-REIT, DBS Research recommends accumulating Mapletree Industrial Trust should there be any dip in price.
DBS Research: Mapletree Industrial Trust (SGX: ME8U) – BUY; $1.94
3. Keppel REIT
Office market on the verge of recovery
According to DBS Research, we are at the start of an upturn in the office property market.
DBS Research foresees an expected recovery in office rents, following Grade A CBD rents increasing for the first time in ten quarters.
Based on historical trends, Keppel REIT’s share price typically leads a recovery in spot office rents by six to 12 months.
Bargain for a best-in-class office portfolio
Keppel REIT’s current share price implies a valuation of ~$2,550 per square foot for its Singapore portfolio.
DBS Research believes that its Singapore office portfolio should be valued at $2,700-2,900 per square foot.
DBS Research cited that there have been several transactions at or above this valuation for similar properties by both foreign and experienced local developers and landlords.
This demonstrates the resilience and value of Keppel REIT’s portfolio valuation.
While acknowledging that Keppel REIT has a flattish DPU profile boosted by capital distributions, DBS Research feels that the ~15% discount to book value is too wide for a best-in-class office portfolio.
DBS Research: Keppel REIT (SGX: K71U) – BUY; $1.28