Earlier in the first part of this two-part series, we highlighted Frasers Centrepoint Trust, Mapletree Industrial Trust and Keppel REIT following recommendations from analysts.
In the second part of this series, we continue to highlight another three REITs that have been recommended by analysts following their quarterly earnings announcement.
1. Mapletree Greater China Commercial Trust (MAGIC)
Since DBS Research’s recommendation in April, MAGIC has been rallying.
However, DBS Research notes that MAGIC’s share price rally can continue, citing the improving macro conditions in Hong Kong.
The discount of MAGIC against its Hong Kong peers is another driver for the rally.
Attractively valued, but underappreciated by the market
One of the key reasons for DBS Research’s recommendation of MAGIC is its attractive valuations.
MAGIC has a 6.1% forward yield, relatively high among its peers, given its quality properties in the gateway cities of Hong Kong, Beijing and Shanghai.
DBS Research also believes that the yield premium that MAGIC trades against its Hong Kong peers is unwarranted given its strong track record of DPU delivery.
DBS Research: Mapletree Greater China Commercial Trust (SGX: RW0U) – BUY; $1.30
2. CapitaLand Commercial Trust (CCT)
CCT has been busy with divestments recently, leading to revenue and lower net income.
Moving forward, CCT will be offsetting the loss in rental income due to divesting of assets by distributing gains from the divestments.
Acquiring Asia Square Tower 2 at a discount
Following its announcement to acquire Asia Square Tower 2, Maybank Kim Eng Research (MBKE) foresees a dip in DPU of 2.0% because of a dilution in units as rights are issued to fund the acquisition.
As such, CCT’s current share price implies a discount from its book value.
Moreover, CCT will acquire Asia Square Tower 2 at an attractive discount when compared to other properties around the CBD area.
Office portfolio undervalued
Another reason why DBS Research believes that CCT share price discount is unwarranted is that of its prime office portfolio.
Firstly, CapitaLand Commercial Trust has demonstrated the conservative valuation of its properties through the sale of three office buildings at 14-39% premium to book values.
Secondly, the current share price understates valuation remains in buildings such as Capital Tower and 999- year leasehold HSBC Building.
DBS Research: Investors will appreciate asset recycling strategy
DBS Research believes that investors will eventually appreciate the benefits of CapitaLand Commercial Trust’s asset recycling strategy.
As such, we should see an improvement in the quality of its portfolio through reducing its CBD fringe exposure and expansion into Marina Bay.
DBS Research: CapitaLand Commercial Trust (SGX: C61U) – BUY; $1.30
3. Mapletree Logistics Trust (MLT)
In this quarter, MLT completed the divestments of three properties: Zama Centre, Shiroishi Centre in Japan and 4 Toh Tuck Link in Singapore.
MLT will distribute the combined divestment gains of ~$5.4 million to unitholders over the following six to eight quarters.
MLT will then use the proceeds to work towards initiatives to enhance its asset holdings and look for inorganic growth opportunities.
Inorganic growth by acquiring Mapletree Logistics Hub Tsing Yi
As part of its inorganic growth, Mapletree Logistics Trust recently announced the proposed acquisition of Mapletree Logistics Hub Tsing Yi.
Mapletree Logistics Hub Tsing Yi is an 11-storey modern ramp-up warehouse that is well connected to city centre, the Hong Kong International Airport (HKIA), Kwai Chung-Tsing Yi container terminals and the Mainland China boundary via major expressways.
According to DBS Research, the superior specification and young age of the property are potential factors to pull in prospective tenants and investors.
Thus, DBS Research believes that tenant retention rates are likely to remain high going forward.
DBS Research notes that the property is 100% pre-committed to 12 tenants (including Ever Gain, Adidas, HKTV and DKSH).
Moving forward, DBS Research believes that the lack of modern logistics warehouses will drive demand for the new Mapletree Logistics Hub Tsing Yi.
As such, the property can command a premium of up to 30%, when compared to warehouse rents in Singapore.
DBS Research: Mapletree Logistics Trust (SGX: M44U) – BUY; $1.38