General S-REITs Discussion Thread

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S-REITs total $147m net institution outflows in June-August

S-REITs total $147m net institution outflows in June-August

https://sbr.com.sg/stocks/in-focus/s-reits-total-147m-net-institution-outflows-in-june-august



Sabana REIT saw the sector’s highest proportional net institutional inflows.

Singaporean REITs received $147m in net institution outflows since 9 June to 28 August, according to data from the Singapore Exchange (SGX). This is a 3% decline compared to the peak recorded in the i-Edge S-REIT Leaders Index forum from 23 March to 9 June.

A total of 13 trusts of the S-REIT sector saw net institution inflows over the 12 weeks, the bourse noted. Amongst these, Sabana REIT saw the S-REIT sector’s highest proportionate net institutional inflows during the period, at 1%. However, its total return dropped 17% year-to-date (YTD).

This was followed by Frasers Logistics & Commercial Trust (FLCT); Ascendas REIT (A-REIT); SPH REIT; Keppel Pacific Oak REIT; Mapletree Logistics Trust; ARA LOGOS Logistics Trust; and Keppel DC REIT.

Seven of the top 10 included are the S-REIT Sector’s best performers over the period, including Keppel DC REIT which has been amongst the 25 strongest performing global REITs in the 2020 YTD.

By comparison, the 10 trusts of the S-REIT sector that saw the highest net institutional inflow proportionate to market capitalisation following the major market lows of 23 March through to the post-low of 9 June included: First REIT, A-REIT, FLCT, Mapletree Logistics Trust, Soilbuild Business Space REIT, Keppel REIT, EC World REIT, Keppel Pacific Oak REIT, Ascott Trust and SPH REIT.

During the 12-week period, the 10 trusts averaged a 54% total return compared to the remaining trusts of the S-REIT Sector gaining 45%.
 
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Parliament: Assessors can specify rent waiver amount for tenants under proposed changes to Covid-19

Parliament: Assessors can specify rent waiver amount for tenants under proposed changes to Covid-19 Act

https://www.straitstimes.com/politi...9-act-including-enhanced-powers-for-assessors

SINGAPORE - Assessors appointed by the Ministry of Law (MinLaw) to deal with disputes under the rental relief framework will be given enhanced powers to specify the amount of rent to be waived in some cases, under proposed amendments to the Covid-19 (Temporary Measures) Act.

This is the second time amendments have been proposed to the Act.

In June, the first amendments were passed to require landlords to waive rent for eligible small and medium-sized enterprise (SME) tenants and sub-tenants that have been hit hard by the coronavirus pandemic.

Landlords who are unable to reach an agreement with these tenants on whether the latter are eligible for the rental waivers - the portion supported by government assistance and/or the portion borne by the landlord - are able to apply to have the assessors make a determination.

The landlords can also get assessors to determine whether they can provide tenants a reduced amount of the rental waivers, on the basis of financial hardship.

The proposed amendments, which were introduced in Parliament on Thursday (Sept 3), will allow assessors to specify the amount of rent to be waived for tenants under the framework.

This will apply when the amount is affected by maintenance and service charges, especially if they are not listed in the lease or licence agreement; when the amount could be offset by assistance provided earlier by the landlord; when the tenant is occupying the property for only a part of the relief period; and when there are multiple sub-tenants in the same property.

In addition, the amendment Bill will also clarify the existing Part 8 of the Act - not yet in force - that allows parties of some contracts to get relief if they are affected by breaches or delays in construction, supply or related contracts.

It will specify that no application for relief for such contracts can be filed if court, arbitral or Building and Construction Industry Security of Payment Act (Sopa) proceedings related to the application have already started.

Conversely, once an application for relief has been filed, the other parties of the contract cannot commence court, arbitral or Sopa proceedings for the same matter, until a determination is made or the application is rejected or withdrawn.

If a determination is made and the terms of the contract are adjusted, any subsequent applications and determinations made under Sopa must be based on the adjusted contract terms.

In cases where a Sopa application is made before the other party seeks relief under the Act, the Sopa adjudicator will have powers to grant relief - similar to that of the assessors - to account for the impact of Covid-19.

The amendments to the Covid-19 (Temporary Measures) Act will also include continuing to allow alternative arrangements for meetings, such as annual general meetings, to prevent the spread of Covid-19, regardless of whether safe distancing regulations change or cease.

Currently, organisations and entities are allowed to do so until Sept 30.

MinLaw said it will announce an extension of the time frame "soon" to give greater certainty and confidence to organisations in convening or holding meetings using alternative arrangements.

It added that if passed, the amendments tabled on Thursday will keep Singapore's legal interventions relevant and responsive to the continued uncertainty brought about by Covid-19.

"Further details of these amendments are still being worked out and will be announced separately," said MinLaw, adding that it is aiming for the amendments and the necessary changes in subsidiary legislation to take effect before the end of this month.
 
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Analysts are gaining confidence on S-REITs

Analysts are gaining confidence on S-REITs

https://www.theedgesingapore.com/capital/reits/analysts-are-gaining-confidence-s-reits

Singapore is still in Phase 2 of reopening the economy and businesses are slowly getting used to the new normal and are adapting well. This is apparent especially with the local REITs, as analysts are gaining more confidence in the sector and are venturing out of their safe zone to invest more in other Singapore REITs (S-REITs).

S-REITs gained marginally by 0.3% from August 16 to 30, and many recovery plays were seen, according to UOB Kay Hian. The top performers for that period came mostly from the retail REITs, Hospitality REITs and a Healthcare REIT.

Retail REITs, such as Frasers Commercial Trust (FCT), Lendlease Global Commercial REIT (LREIT), Mapletree North Asia Commercial Trust (MNACT) and CapitaLand Mall Trust (CMT) saw 7.2%, 4.8%, 4.4% and 3.7% gains respectively in the past two weeks.

Hospitality REITs, such as Far East Hospitality Trust (FEHT) and ARA US Hospitality Trust (ARAUST) increased 5.8% and 4.4% respectively, while healthcare REIT Parkway Life REIT (PREIT) was up by 6.2%.

And while these REITs are gaining momentum, the industrial REITs, which were known to be the “safe” ones, are losing steam and are some of the top underperformers for the period. Industrial REITs Frasers Logistics Trust (FLT), Mapletree Industrial Trust (MINT) and Ascendas REIT (AREIT) lost 2.9%, 2.9% and 2.6% respectively as investors switch towards recovery plays in the retail and hospitality sectors.

In a September 2 report, lead analyst Jonathan Koh is positive on the Hospitality REITs’ recovery as Singapore has started the process of gradually re-opening its borders. The border restrictions to travellers from Brunei and New Zealand have been lifted where their Covid-19 situations are assessed to be well under control and risk of importation is low.

With effect from 1 Sep 20, travellers who stayed in Brunei and New Zealand in the last 14 consecutive days will not be required to serve the Stay Home Notice (SHN). However, they have to apply for an Air Travel Pass (ATP) and undergo Covid-19 test upon arrival at Changi Airport. The government SHN duration has also been shortened from 14 days to 7 days for travellers from other low-risk countries and regions, such as Australia (excluding Victoria state), Macao, China, Taiwan, Vietnam and Malaysia.

“Singapore has to gradually re-open its borders so as to maintain Changi Airport’s hub status. The challenge is to restore passenger volume, while keeping virus transmission under control,” says Koh, who has “buy” calls on FEHT and FHT with target prices of 58 cents and 54 cents, respectively as “both stocks trade at an attractive discount of almost 40% to NAV”.

Meanwhile, DBS Group Research shares the same sentiment as lead analyst Derek Tan says, “Valuation discount for ‘Covid-19 impacted’ sectors are too wide to ignore. We maintain our stance that we expect the S-REIT rally to broaden out in 2H20.”

“While investors have been rewarded for sticking with the large cap industrial S-REITs in YTD20, the valuation disparity between these and Covid-19 impacted sectors (retail, office and hospitality) has widened to more +1 standard deviation (SD) since the pandemic struck. We believe this warrants a relook and switch,” Tan adds.

Supported by positive datapoints in its recent channel checks coupled with expected gradual upturn in economic metrics, the analyst expects these sectors to play catch up, with the office and retail sector outperforming.

In the office space, Tan likes Keppel REIT (KREIT) and Mapletree Commercial Trust (MCT), as well as FCT, CMT and LREIT in the retail scene. However, he believes that there is still value from taking a rotational strategy in the industrial space, with AREIT and FLT as the industrial sector picks.

As for the hospitality sector, more time will be needed to recover, but given minimal to no expectations, Tan likes ART and FEHT for their good value.

“We see risk abating as financial metrics remain stable (gearing has inched higher but remains <38%, ICR healthy at >4.0x) despite one of the worst quarters in SREITs’ history. Supported by government incentives and managers’ proactive cash preservation strategy and access to capital markets has enabled S-REITs’ balance sheets to pass the litmus test,” says Tan.
 
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Brokers' take: DBS, UOBKH deem CapitaLand Reits' merger attractive

Brokers' take: DBS, UOBKH deem CapitaLand Reits' merger attractive

https://www.businesstimes.com.sg/co...uobkh-deem-capitaland-reits-merger-attractive

THE proposed union of CapitaLand Mall Trust (CMT) and CapitaLand Commercial Trust (CCT) offers an opportunity for their unitholders to ride on the benefit of a bigger vehicle post-merger, said DBS Group Research.

Unitholders can also capitalise on mixed-use assets and the progressive recovery of both portfolios from the Covid-19 pandemic, said DBS analyst Rachel Tan in a note on Monday.

First announced before the coronavirus pandemic, the two real estate investment trusts' (Reits) merger will create CapitaLand Integrated Commercial Trust (CICT) via a trust scheme of arrangement if successful.

Both Reits' managers last week issued notices that their respective unitholder meetings will be held on Sept 29 for the proposed union. This fixed date for the extraordinary general meetings "finally" removed the uncertainty of the merger plans, which bodes well for both CMT and CCT, Ms Tan wrote.

Besides, given that the transaction will be made below one-time price to net asset value, DBS believes it will be attractive for the Reits' unitholders, she added.

Last week, the two Reits also announced deal sweeteners for the merger, such as higher accretion to their respective distribution per unit and CMT's manager completely waiving its S$111.2 million acquisition fee.

Meanwhile, UOB Kay Hian (UOBKH) noted that benefits from the planned union include the enlarged scale, the attractiveness of integrated developments, reduced asset concentration risk, and the merged entity staying grounded in Singapore.

The combined portfolio will double in size to 24 properties, and CICT will be the largest Reit in Singapore and the second-largest in Asia-Pacific.

"CICT will become the best proxy for S-Reits (Singapore-listed Reits). In addition, the enlarged scale positions will allow CICT to take on large scale integrated developments," said the brokerage in a sector update on Monday. CICT will have a large development headroom of S$5.8 billion, assuming the unitholders approve the higher 15 per cent cap for redevelopment of existing buildings, wrote UOBKH analysts Jonathan Koh and Loke Peihao.

Moreover, there is now a shift towards integrated developments in Singapore due to the intensification of land use and the attractiveness of such projects given that they are captive eco-systems that support work, live and play culture, the analysts said, adding that this shift is expected to accelerate after the Covid-19 pandemic.

CICT will own five integrated developments including Funan and Raffles City Singapore, accounting for 29 per cent of the combined portfolio, UOBKH noted.

The combined Reit portfolio will also have eight office assets and 11 retail properties, making up 38 per cent and 33 per cent of CICT's portfolio valuation respectively. In addition, net property income contribution from the top five properties will be reduced to 43 per cent for CICT, from CMT's current 50 per cent and CCT's 82 per cent.

Another benefit is that the enlarged entity will remain grounded in Singapore, UOBKH said. About 96 per cent of the combined portfolio is in Singapore, while the rest is located in Frankfurt, Germany. Overseas exposure will be capped at 20 per cent of portfolio valuation, or S$4.5 billion.

The brokerage maintained its "buy" call on CMT with a S$2.55 target price and its "hold" call on CCT with a S$1.66 target.

As at 2.17pm on Tuesday, units of CMT were trading at S$1.99, up S$0.01 or 0.5 per cent. CCT units gained S$0.01 or 0.6 per cent to S$1.70.

UOBKH sees CMT as a recovery play as safe-distancing measures ease and consumer behaviour gradually returns to pre-Covid-19 levels.

Separately, UOBKH on Monday maintained its "overweight" rating for the S-Reit sector, with CMT, Far East Hospitality Trust and Frasers Centrepoint Trust among its top "buy" ideas.
 
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Low rates breathing life into S-Reit perps space: DBS

Low rates breathing life into S-Reit perps space: DBS

https://www.businesstimes.com.sg/co...es-breathing-life-into-s-reit-perps-space-dbs

DEMAND is returning to Singapore-listed real estate investment trust (S-Reit) perpetual securities - with year-to-date issuances totalling some S$575 million from three deals in the third quarter.

DBS Group Research wrote in a report on Tuesday that the low interest-rate environment and a rebound in markets fuelled by an infusion of liquidity have revived the space, which was earlier "shut" by S-Reits' heightened volatility and uncertainty over cash flow in the first half of this year.

Proceeds from the three issuances in Q3 so far have been used to either fund acquisitions or refinance existing perps before their first coupon reset dates. The research team said that these issuances will result in about 1-1.9 per cent accretion to the three S-Reits' distributions.

Based on DBS's initial estimates, other S-Reits with upcoming reset dates for their perps may potentially explore the market again to refinance the instruments at the call dates, although this will be subject to whether they can achieve lower or similar spreads versus letting the coupon reset.

The next soonest reset will take place in May 2021, for Frasers Hospitality Trust's S$100 million 4.45 per cent perp. Following that, Lippo Malls Indonesia Retail Trust's 7 per cent perp resets in September 2021 while Mapletree Logistics Trust's 4.18 per cent perp resets in November 2021.

More S-Reits dipping into this space will, over time, infuse confidence in investors on the viability of the perps market, DBS analysts said.

They added that the ability of S-Reits to maintain fairly healthy financial metrics through the depth of the recession in H1 2020 could have led to greater confidence in these trusts' financing or refinancing ability.

Although S-Reits have not tapped perps in a big way, the securities offer wider financing options for the trusts, the analysts said.

They noted that S-Reits have so far issued just S$2.4 billion worth of perps, compared to S$45 billion in debt instruments including bank loans and equity value of S$105 billion.

During the third quarter this year, AIMS Apac Reit sold a S$125 million 5.65 per cent perp to fund its acquisition of the 7 Bulim Street logistics facility, Keppel Reit issued a S$150 million 3.15 per cent perp to refinance its 4.98 per cent perp with a Nov 2 call date, while Ascendas Reit priced a S$300 million green perp at 3 per cent to refinance its existing securities ahead of the Oct 14 first call.

Ascendas Reit's latest issuance saw strong institutional demand coming in at S$725 million - more than twice the offer size. DBS estimates that this new green perp will bring savings of close to S$5 million for Ascendas Reit, or about 1 per cent of its distributable income.

"While not material, it goes towards limiting downside risks on earnings and creates more buffer for Ascendas Reit to manoeuvre the fragile economic outlook," the analysts said.

They have a "buy" call on the counter with a S$4.00 target price. Ascendas Reit units were trading at S$3.21 as at 11.04am on Tuesday, down S$0.02 or 0.6 per cent.

As for Ascott Residence Trust (ART), DBS believes the stapled group has ample liquidity to consider redeeming its recently reset perps at the next available call date this December.

In June, ART decided to allow its S$250 million perp to reset to 3.07 per cent - lower than the previous 4.68 per cent coupon rate - instead of redeeming it at first call. Analysts said then that more Reit issuers of perps may follow in ART's footsteps. DBS also flagged that investors could face a risk of a 1-1.8 percentage point drop in coupon rates if the issuers skipped their first calls.

While ART's non-call move was unprecedented, the manager's decision was sound, given that there was heightened uncertainty in the operating outlook at the time with hotels being shut down, DBS noted on Tuesday. The manager's focus on improving ART's liquidity position was "paramount in maintaining the overall soundness of its capital structure", the analysts said.

However, since then, ART's liquidity position has improved, and the manager has been consistently recycling capital, out of which DBS estimates net proceeds of more than S$230 million to be received in H2 2020 to Q1 2021.

This thus puts the manager in good stead now to consider a call of the perps in December, or to redeploy the improved liquidity into other yield-accretive acquisitions, the analysts added.

DBS rated ART a "buy" with a S$1.10 target price. Its stapled securities rose S$0.01 or 1.1 per cent to trade at S$0.93 as at 11.04am on Tuesday.
 
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