Comprehensive Analysis of S-REITs by UOB Kay Hian – December 3, 2024
The December 3, 2024 report from UOB Kay Hian provides an insightful and detailed examination of the Singapore Real Estate Investment Trusts (S-REITs) landscape. It discusses the investment potential and market movements of various S-REITs, offering a range of recommendations for investors. Here, we delve into the key highlights and analyses of several prominent companies within this sector.
Overview of S-REIT Market
Before diving into individual company analyses, it’s essential to note that the Federal Reserve is expected to proceed with rate cuts at a gradual pace. Government bond yields have stabilized following an initial surge due to Donald Trump’s re-election as US President. This has resulted in many blue-chip S-REITs correcting and now trading at attractive yields between 6-7%. The report maintains an OVERWEIGHT rating on S-REITs, echoing a positive outlook on their performance.
KDCREIT: A Strategic Acquisition
Keppel DC REIT (KDCREIT) is set to acquire two hyperscale data centers, SGP7 and SGP8, located at 82 Genting Lane in Singapore. These centers are purpose-built for AI inference workload and offer ultra-low latency connectivity. The acquisition, valued at S\$1.38 billion, is accretive to pro forma 1H24 DPU by 8.1%, enhancing KDCREIT’s portfolio and appealing to tech-driven investment strategies. The recommendation for KDCREIT is a BUY, with a target price of S\$2.64.
CICT: Divestment and Financial Flexibility
Capitaland Integrated Commercial Trust (CICT) has successfully completed the divestment of its 21 Collyer Quay office building for S\$688 million. This move, yielding a divestment gain of about S\$35 million, aims to reduce CICT’s pro forma aggregate leverage from 39.9% to 38.3%. The divestment is expected to provide financial flexibility for future acquisitions. CICT remains a BUY, with a target price of S\$2.59.
CLAR: Expanding into the US Market
CapLand Ascendas REIT (CLAR) is venturing into the US market with the development of a logistics property in Summerville, South Carolina. This project, estimated to cost S\$94.8 million, marks CLAR’s first US development. The logistics center will feature high ceilings and a rear loading configuration, with a projected stabilized NPI yield of 7.2% for the first year. CLAR’s involvement in the US logistics sector is seen as a strategic diversification of its portfolio, reinforcing its BUY recommendation with a target price of S\$3.74.
PGNREIT: Strategic Divestment
PGNREIT is divesting its 85% stake in Figtree Grove Shopping Centre in Wollongong, Australia, for A\$192 million, a 5% premium above valuation. This transaction is anticipated to complete in the first quarter of 2025, positioning PGNREIT to optimize its portfolio and focus on higher yield opportunities. The current recommendation remains OVERWEIGHT.
TOP S-REIT PICKS
The report highlights several top picks among S-REITs:
- Frasers Centrepoint Trust (FCT) – BUY at S\$2.13, target price S\$2.79.
- Digi Core REIT (DCREIT) – BUY at US\$0.615, target price US\$0.95.
- Lendlease REIT (LREIT) – BUY at S\$0.56, target price S\$0.77.
- Mapletree Industrial Trust (MINT) – BUY at S\$2.32, target price S\$3.05.
Market Movements and Performance
In November, the FSTREI index corrected by 3.8%, underperforming the STI, which gained 5.1%. Notably, Sasseur REIT emerged as the top performer, gaining 1.4% due to favorable policies in China. Conversely, Frasers Logistics & Commercial Trust (FLT) saw a significant drop of 15% following a downgrade from a major broker.
Conclusion
The December 2024 report from UOB Kay Hian offers a comprehensive view of the S-REIT landscape, highlighting strategic moves and market performances that inform investment decisions. With targeted BUY recommendations and strategic insights, the report serves as a valuable resource for investors seeking to navigate the complexities of the S-REIT market.
