ACCORDING TO DBS Vickers, S-REITS are fairly valued, but interest in the sector is likely to remain firm as investors seek to combat inflationary pressures.
This is based on a weighted-average FY2013F yield of 5.8% and a price-book of 1.13x.
Capital allocations within the S-REITs sector are likely to remain high because of the following reasons:
> Strong S$
> Sustained low interest rate environment
> Sector yields supported by yield spreads of 450bps above long bonds.
Based on announced and potential pipelines, analysts expect up to a total of S$5.7 billion of asset transactions in 2013.
DBS Vickers' sector picks are Mapletree Commercial Trust, Mapletree Logistics Trust and Far East Hospitality Trust. Here’s what analysts Derek Tam and Lock Mun Yee say about their stock picks.
Far East Hospitality Trust
Far East Hospitality Trust (FEHT) is a pure play into Singapore’s hospitality sector with an industry leading position.
It has a sizeable initial portfolio of 11 hotels and serviced residences, with 2,531 room/ unit keys valued at close to S$2.1 billion, making the trust one of the largest single owner of hotels and serviced residences in Singapore.
In terms of organic growth prospects, it is one of the strongest amongst peers coming from
(i) Operational ramp-up of the newly completed Oasia Hotel
(ii) Phased completions of various refurbishment programs instituted by the sponsor and the manager over the next two years.
The sponsor is part of Far East Organization, a household name in the property development and hospitality sector in Singapore.
Apart from being able to tap the sponsor’s valuable experience in the hospitality business, the sponsor has also given a right of first refusal to Far East H-Trust to acquire up to an initial pipeline of seven hotels/serviced residences, which could potentially grow keys under its ownership by close to 49.1%.
FEHT signed an MOU regarding the proposed acquisition of Rendezvous Grand Singapore Hotel, a prime downtown hotel.
"While no financials are shared at this point, we expect this acquisition to be accretive to the trust when completed and should result in further upside surprise to our numbers."
BUY with target price at S$1.09.
Mapletree Commercial Trust
The analysts expect VivoCity and Alexandra Retail Centre (ARC) to see improved operating metrics.
Mapletree Commercial Trust (MCT) is expected to continue delivering sustained growth in the coming year, driven by positive rental reversions at VivoCity and improving precommitments at ARC (75.9% vs 60% a quarter ago).
Meanwhile, average rent for VivoCity continued to trend upwards nicely to more than S$11psf/mth.
While occupancy cost has risen to 17%, it is still lower compared to city malls (c.20%). Hence, we believe the trust can continue to drive rents, albeit at a more modest pace, on the back of increasing shopper traffic and higher tenant sales.
Also, the management is proposing the acquisition of Mapletree Anson, a prime office asset in Tanjong Pagar for S$680m, which we have yet to factor into our forecasts as the financing details have yet to be disclosed.
"We however note that the management has highlighted that they expect this deal to be DPU and NAV accretive."
BUY with target price at S$1.35. MCT is one of the few REITs with a significant pipeline from its sponsor that it can tap into in the medium term. Further upside earnings surprises include the acquisition of Mapletree Business City, which would add further earnings stability to the trust.
Mapletree Logistics Trust
Mapletree Logistics Trust (MLT) offers an attractive FY2013-14F yield of 6.3% to 6.5%, which is higher than the S-REIT sector average of 5.8% to 6.0%.
With a diversified portfolio of warehouses located in the region, which are majority leased to global/regional 3PLs and logistics operators, MLT offers investors leverage into the robust intra-regional trade within the Asia Pacific region.
Its organic outlook remains fairly resilient, with a long weighted average lease expiry (WALE) of close to 5.6 years, meaning strong earnings visibility for the trust and limited earnings volatility.
Acquisitions-driven growth engine to kick-start in 2013. MLT has remained active in acquiring and growing its portfolio over the past few quarters.
With a new CEO on board, we see that momentum continuing into 2013, with a focus towards “growth markets” that offer higher relative total returns. The recent acquisition of Wuxi International Logistics Park from its sponsor implies that intent.
"Looking ahead, we see potential earnings upgrades coming in the form of further acquisitions that the manager is reviewing currently and we have factored S$200m worth into our forecasts."
BUY with target price of S$1.22, translating into a total return of 16%.
