Despite an uninspiring quarter, analysts are still positive about these 3 S-REITs.

  1. Frasers Logistics & Industrial Trust

flt

In 2Q18, Frasers Logistics & Industrial Trust (FLT) saw its distribution per unit (DPU) rise by 3.4 percent year-on-year. This was led by inorganic contribution from the maiden portfolio acquisition of seven Australian properties. Its portfolio occupancy remains close to full at 99.4 percent with weighted average lease expiry (WALE) of 6.75 years. In particular, FLT managed to get Ball and Doggett (Sydney tenant) to expand and extend its lease for 10 years in this quarter.

Since it proposed the portfolio acquisition of 21 European assets from its sponsor, FLT share price has been falling. The main concerns from the market were the sizeable equity fund raising, the relative mild accretion and higher gearing post-acquisition. However, CIMB notes that the acquisition means that FLT is acquiring prime assets with positive market dynamics, which justifies the acquisition for unitholders. Besides diversification benefits, the larger asset under management (AUM) could even lead to a re-rating of FLT share price.

BUY, TP $1.24

REIT Quarterly Scorecard Rating: B+

  1. Manulife US REIT

manulife

Manulife US REIT reported a steady set of results in 1Q18 that was largely in line with consensus estimates. Its gross revenue and net property income rose 57.1 percent and 54.1 percent year-on-year respectively, on the back of inorganic contributions from Plaza and Exchange.

With the fundamentals of the US office segment remaining strong, Manulife US REIT could see some room for occupancy improvements in Figueroa and Peachtree. RHB notes that the management is already in discussions for upcoming lease renewals in 2019. Given that Manulife US REIT portfolio average rental rate is below market rate, RHB foresees room for organic rent growth.

Manulife US REIT recently acquired a new property (Penn and Phipps), which is expected to be completed by 2Q18. RHB believes that the new acquisition will contribute positively to Manulife US REIT’s results from 2H18 onwards. Manulife US REIT’s current dividend yield of more than six percent will give investors an attractive dividend yield over the other Singapore office REITs.

BUY, TP US$1.00

REIT Quarterly Scorecard Rating: B

  1. Keppel DC REIT

Keppel DC REIT’s quarter was dominated by the acquisition of 99 percent stake in Kingsland Data Centre (KDCPL). KDCPL is a Tier 3, 5-storey, purpose-built, carrier-neutral colocation data centre. It currently has an 84 percent commitment, which implies a net property income yield of 7.8 percent. Keppel DC REIT will be funding the acquisition by a placement of new units. Its gearing ratio will decline to 32.1 percent post-placement. CIMB notes that the deal is both DPU and NAV accretive despite the acquisition being fully funded by equity. The acquisition will also introduce a new set of customers to the REIT’s customer base.

Moving forward, CIMB highlights that there is still a visible acquisition pipeline for Keppel DC REIT. The REIT could potentially acquire three more assets from the sponsor or from Alpha Data Centre Fund. With Keppel DC REIT trading at a hefty premium to book, it would be easier for it to make accretive acquisitions to find growth as well as lower costs of capital.

BUY, TP $1.49

REIT Quarterly Scorecard Rating: B

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