Following our first article “4 Reasons To Invest In S-REITs Now”, we dive deeper into three REITs that DBS thinks could potentially reward investors with double digit returns.
Investors Takeaway: Getting Double Digit Returns With These 3 REITs
1. Ascendas Hospitality Trust
Ascendas Hospitality Trust (ASCHT) has been ignored by many investors due to its small market cap and its large exposure outside of Singapore. But it is precisely because of its presence in Australia (50 percent of FY18 net property income) and Japan (25 percent) that DBS thinks it is an opportunity to invest. Thanks to their low penetration of international visitors, DBS opines that both countries are experiencing a secular uptrend in the medium term.
DBS also likes ASCHT for its ability to turn its assets into profits. The management has demonstrated the ability to buy low and sell high with the recent sale of its Beijing hotels at more than twice the book value, representing an exit yield of 3.6 percent which allowed ASCHT to redeploy the proceeds into properties with net property income (NPI) yield above 4.1 percent. However, DBS notes that this value-added action has yet to be recognised given that ASCHT’s share price has fallen over ten percent year-to-date.
With its gearing expected to settle around 29 to 30 percent post the reconstitution of its portfolio, ASCHT is now in a strong position to pursue distribution-accretive acquisitions. DBS notes that ASCHT’s current share price offers an opportunity for investors to buy into ASCHT’s high 7.6 percent yield and a price-to-book value of 0.85 times.
Ascendas Hospitality Trust: BUY, TP $0.98
2. Ascendas India Trust
Among S-REITs, Ascendas India Trust (a-iTrust) is one of the fastest growing REIT. Last year, a-iTrust expanded into modern warehouses, which DBS believes would open a new leg of growth for the trust beyond its exposure to the already fast-growing business space sector.
The latest development will give a-iTrust the ability to accelerate medium-term earnings growth and aid a-iTrust in achieving 3-year distribution-per-unit (DPU) compounded annual growth rate (CAGR) of 13 percent. The expected DPU CAGR of 13 percent is 3 to 4 times faster than the average for the S-REIT sector.
Through its untapped landbank and sponsor pipeline, a-iTrust has access to over 5 million sqft of floor area. Combined with the recent expansion into the Indian warehouse space which provides for a potential acquisition pipeline of 2.8 million sqft, a-iTrust has a visible source of growth over the long term. The ability to execute on these growth opportunities is also supported by its strong balance sheet.
Ascendas India Trust: BUY, TP $1.25
3. CapitaLand Commercial Trust
With the price correction over the past few months, CapitaLand Commercial Trust is now being undervalued, especially with its multi-year upturn in office rents in Singapore ahead. The market has been pricing CapitaLand Commercial Trust at a discount to book value. However, DBS thinks that the conservative valuation of its properties should be moved to demonstrated by the sale of three office properties at 14 to 39 percent premium to book value.
With Singapore office rents rising faster than expected and increasing for the third consecutive quarter, interest in CapitaLand Commercial Trust is bound to take flight. The market will now turn its focus to the expected multi-year recovery in office rents as new supply over the coming three years is limited.
DBS also highlights that the recent expansion into Germany/Europe provides another growth avenue which the market has not fully appreciated.
CapitaLand Commercial Trust: BUY, TP $2.12