ANALYSTS SAY: Buy, Sell, Hold (18 July 2017)

Keppel DC REIT

Awaiting more acquisitions

SINGAPORE | REAL ESTATE (REIT) | 2Q17 RESULTS

 2Q17 gross revenue exceeded our forecast by 5.4%.

 2Q17 DPU in line with our forecast.

 3.63 cents declared for 1H 2017 semi-annual distribution

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Property - Overall

Focus on replacement cost and spot rents

■ Maintain Overweight on developers and lower S-REITs weightage to Neutral ahead of the results season.

■ New launches and asset recycling are near-term earnings drivers for developers; land replacement cost, balance sheet and capital deployment to drive outlook.

■ For S-REITs, slow organic growth and negative rental reversions are partly offset by contributions from new acquisitions.

■ Top sector picks are UOL, City Dev, Capitaland and Wing Tai for developers and FLT, MCT and MAGIC for S-REITs

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First REIT: In-line 2Q17 results

First REIT (FREIT) reported an in-line set of results for 2Q17. Gross revenue grew 3.3% YoY to S$27.5m while NPI grew 3.2% YoY to S$27.2m, forming 25.1% and 25.0% of our full-year forecasts, respectively. Growth was boosted by a full quarter contribution from Siloam Hospitals Labuan Bajo, as well as higher rental income from the existing portfolio. Consequently, DPU grew 1.4% YoY to 2.14 S-cents, forming 25.6% of our full-year projection. We also note that the REIT Manager has reduced its management fees taken in units from 92.0% in the preceding quarter to a more sustainable level, in our view, of 70.1% in 2Q17. Looking ahead, we are aware of FREIT’s intention to acquire one or two high-quality properties this year to grow its income stream. This can be achieved by leveraging its sponsor’s pipeline of over 40 healthcare assets in Indonesia. Pending an analyst briefing later today, we place our HOLD rating and S$1.32 fair value estimate under review.

Viva Industrial Trust

Gathering Momentum

Viva has announced the completion of its AEI and the opening of Harvey Norman’s first ever factory outlet at VBP. We are positive on the rejuvenation of VBP (white space) and expect a positive spill-over effect on its business park component. Our checks also indicate healthy leasing interest for JS, which should lead to higher occupancy rates and mitigate investor concerns over the asset. Additionally, a favourable ruling on the tax transparency treatment for rental support would lift our DPU estimates by ~3%. Maintain BUY, with a TP of SGD0.97 (from SGD0.85, 6% upside).

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