S-REITs have been putting up an outstanding performance against the rest of the Singapore market. The outperformance of the SREITs so far has been due to the contribution of large and selective mid-cap REITs.
DPU Growth Outlook Starting To Look Stronger
Moving forward, the distribution per unit (DPU) outlook for the REIT sector continues to remain strong. CIMB projects that DPU will grow 1-2 percent in 2019 and 2020, which was stronger than the 0.5 percent growth registered in 2018. The growth will be achieved through a combination of positive rental growth as well as contributions from new acquisitions made in 2018.
Laggard Plays In The Office And Hospitality Sectors
In terms of strategy, CIMB recommends investors to continue being overweight on S-REITs as S-REIT share price will continue outperforming the broader market in the more benign interest rate environment. However, given that the smaller cap S-REITs have lagged behind, a shift towards laggard S-REIT plays is expected. CIMB prefers office and hospitality REITs over retail and industrial REITs.
Investors Takeaway: Suntec REIT For Office And CDL Hospitality REIT For Hospitality Sub-Sector By CIMB
Among the laggard S-REITs in the office and hospitality REIT sub-sector, CIMB has shown a liking for mid-cap Suntec REIT and small-cap CDL Hospitality REIT.
- Suntec REIT: Tailwind From Multiple Angles
According to CIMB, there is an opportunity for Suntec REIT to grow its rental revenue from rental escalation. Suntec REIT is currently awaiting to re-contract 8.2 percent and 17.6 percent of its office net leasable area due to be re-contracted in FY19F and FY20F, respectively. This should allow Suntec REIT to leverage on the rising office rental trend for positive rental reversion.
Besides that, CIMB also sees opportunities for inorganic growth. Suntec REIT is planning to explore acquisition opportunities, particularly within its current geographic footprint. Suntec REIT management has also signalled its medium-term intention to manage down the proportion of capital distribution, which will be viewed positively by the market.
BUY, TP $2.06; Current share price $1.96
- CDL Hospitality REIT: Growth Factors In Full Force
CDL Hospitality REIT is CIMB’s top pick for the hospitality sub-sector. CIMB highlights CDL Hospitality REIT as a bellwether for Singapore’s hospitality stocks. CDL Hospitality REIT is expected to deliver a strong DPU growth of 2.5 percent in 2019F, driven by a few factors including, the reopening of its repositioned Dhevanafushi Maldives Luxury Resort (DMLR), completion of AEI in Orchard Hotel, a full year’s contribution from the acquisition of Hotel Cerretani Florence, Italy, and a recovery in the hotel industry in Singapore.
BUY, TP $1.80; Current share price $1.64