In part three of this 4-part series, we turn our attention to REITs that investors should own in 2H19 despite their mediocre results in the latest earnings performance.
Investors Takeaway: 3 REITs To Own In 2H19 Despite A Mediocre 1Q19 Performance
- Frasers Centrepoint Trust
Frasers Centrepoint Trust recorded its highest quarterly DPU in 2Q19, thanks to higher revenue, lower utilities expenses and lower property tax. Rental reversion continued its positive momentum into 2Q19 with Causeway Point putting in a strong rental reversion of 6.2 percent.
Besides rental reversion improvements, shopper traffic also rose by 2.4 percent in 2Q19. Every suburban mall in Frasers Centrepoint Trust’s portfolio except Bedok Mall saw higher shopper traffic, helping the Trust to register a result that was largely in line with the street’s full-year forecast.
Another key positive for Frasers Centrepoint Trust this quarter is the acquisition of minority stakes in PGIM Real Estate Asia Retail Fund. According to CIMB, the acquisition will allow Frasers Centrepoint Trust to increase its exposure to suburban malls in Singapore. Overall, CIMB likes Frasers Centrepoint Trust for its exposure to stable suburban malls.
1Q19 Performance Rating: B+; BUY, TP $2.53
- ESR REIT
ESR REIT completed its first quarter, following the merger with Viva Industrial Trust. Results for 1Q19 came in line with market expectations, with DPU coming in at 26.8 percent of OCBC’s full-year forecast. Most notable was the positive rental reversion of 1.6 percent, which contrasts with the -2.9 percent in FY18. One thing that OCBC remains a little wary of, is ESR-REIT’s relatively high gearing ratio of 41.9 percent.
So far, ESR REIT has underperformed the STI by seven percent and is currently trading at a price-to-book value multiple that is below the average of its large portfolio peers. In addition, its dividend yield of 7.5 percent FY19F yield is now way above the 5.7 percent yield of its large portfolio peers. OCBC believes that the correction in ESR REIT share price has over-extended and thus, recommends investors to take notice of this REIT again.
1Q19 Performance Rating: B+; BUY, TP $0.565
- Ascott Residence Trust
Ascott Residence Trust completed the quarter with a seven percent year-on-year increase in DPU. This was supported by an exceptional performance in both the Singapore and UK markets. Ascott Residence Trust’s Singapore segment saw a 23 percent year-on-year increase in revenue, driven largely by RevPAU growth.
Similarly, revenue in the UK market also grew as the weak pound boosted tourism and visitor arrivals. While there are uncertainties around the Brexit, downside is limited as Ascott Residence Trust’s UK portfolio comprises management contracts with minimum guaranteed income.
In this quarter, Ascott Residence Trust also managed to complete multiple asset enhancement initiatives for Ascott Makati, Citadines Arnulfpark Munich, Citadines Trocadéro Paris, Somerset Grand Hanoi and Sheraton Tribeca New York Hotel. Further asset enhancement initiatives for properties such as Somerset Grand Citra Jakarta and Element New York Times Square West are expected to complete in the upcoming quarter.
According to UOBKH, Ascott Residence Trust typically benefits from a double-digit uplift in average daily rates post asset enhancement initiatives.
1Q19 Performance Rating: B+; BUY, TP $1.46